Does your apartment or landlord give you the option of paying your rent by credit card? If so, then this could be a great opportunity to improve your financial situation.
However, if you’re not the best with credit, then it can also lead to trouble. In this post, we’ll go through the pros and cons of using a credit card to pay for your rent.
The Pros of Using Your Credit Card
The first thing to know about putting your rent on a credit card is that it might be able to help boost your FICO Score. Your rent is one of those reoccurring payments that you were going to make anyways. Especially for newer credit card users, this might be exactly the type of payment you’d want to include because each payment can be another positive mark in your credit history.
Setting up your credit card to automatically pay your rent also means you’ll likely never miss a payment. Whenever any bill such as rent, utilities, or even paying the credit card itself is set up for autopay, it removes any manual human interaction. That means you can sit back and focus on school, work, or other priorities while the bills take care of themselves.
Finally, there are cashback rewards. Large reoccurring charges such as a rent payment are an easy way to earn more rewards points. For instance, if you’ve got a card that offers cashback rewards, and your rent is $1,000, then you might be able to earn $20 each month for a payment you were already planning to make.
In fact, if you fully commit to paying your balance off in full every month and have the financial resources to continue doing so, then this could be a strategic opportunity to earn even more points by putting some of your other reoccurring bills on your credit card as well. The more charges you make, the more your cashback rewards balance can possibly grow.
The Cons of Using Your Credit Card
Putting your rent on your credit card is not without its dangers. For starters, if you don’t regularly pay your balance off in full each month, then you’ll rack up a huge balance fast. The accumulation of interest and fees can ultimately make your rent far more expensive than it ever should have been.
Depending on the level of your credit limit, regularly making this charge might also hurt your credit score. The credit reporting bureaus monitor what’s called your “credit utilization ratio”, and they generally prefer that it be under 30 percent. For example, someone with a $3,000 credit limit and a $1,000 rent payment would have a ratio of 33 percent. Therefore, they’d exceed this limit, and it could possibly be reflected poorly in their credit score.
Finally, if you already know that you don’t have the best financial habits, then using your credit card could be like playing with fire. For instance, if you’ve already got a balance that’s high to your credit limit, then there’s the potential that your payment may be declined. This could lead to penalties with your landlord for being late, or even worse, it could possibly even lead to eviction.
Use Your Credit Responsibly
Before putting any reoccurring charges on your credit card, you should understand the potential consequences. Only use this strategy if you can be responsible and stay disciplined about using your credit card.