Housing is typically one of the biggest expenses in someone’s budget, and it’s natural to wonder about the best way to pay that bill.
For renters, sometimes it’s possible to pay with a credit card. While you could earn rewards and build credit by doing so, experts say it’s typically not a smart move.
“This is a very large payment. It could rapidly spiral in terms of additional interest rate costs,” said Susan M. Wachter, a professor of real estate at The Wharton School of the University of Pennsylvania.
Your landlord might not even agree to accept payment via a credit card, as they may be subject to paying processing fees.
They simply “may not want the hassle,” said Matt Schulz, senior credit analyst at LendingTree.
Here are three things to consider before you charge your rent payment to a credit card.
1. Processing fees chip away the rewards
An appeal of paying your rent with credit might be earning rewards on that expense. The typical cash back card offers 1.5% to 2% back.
But most third-party payment services and large property management companies charge credit card processing or transaction fees. Those can run between 1% and 3% of the rent charge.
“The cost of that fee may eat into the value of any rewards you might earn, so it might not even be worth it,” said Melissa Lambarena, a credit cards expert at NerdWallet.
The median apartment rent nationwide was $1,964 in January, according to Rent.com. That would generate nearly $60 in monthly credit card processing fees, or more than $700 over the course of a year.
Make sure you review the terms before you decide which card to use. Processing fees vary, and there are some cards that do not charge them, such as the Bilt Mastercard.
2. You run the risk of accumulating interest
If you do not pay the card balance in full by the end of the statement period, you risk adding interest charges on top of your monthly rent.
“Don’t pay rent with a credit card if you’re going to be charged interest,” said Ted Rossman, an industry analyst at Bankrate.
Due to inflation, more people have been racking up and carrying debt, whether from credit cards or buy now, pay later loans. High interest rates can make some of these balances harder to pay off.
The average interest rate for all credit cards by the end of 2023 was 21.47%, the highest annual percentage rate since the Federal Reserve began tracking in 1994, according to LendingTree.
3. Your credit score may dip
Using credit cards for large transactions can affect your credit utilization rate, the ratio of debt to total credit, which weighs heavily into your credit score, Lambarena explained.
“Putting rent on your card’s credit limit could hurt your credit score,” she said. “It’s usually recommended by experts not to use more than 30% of your amount of available credit.”
If you want to put the rent payment on your card, a good buffer is to make sure you have enough available balance. You can ask for a credit limit increase from your card issuer to minimize the effect to your score.