In theory, there’s a lot to be gained from paying your rent with your credit card. It makes sense: Assign your largest recurring payment of the month to your most rewarding card, and let the points or cash back roll in. Right? …almost. But not quite.
In very few cases paying rent with a credit card could be as simple as that. But depending on your landlord, your payment system, your credit limits, and several other factors, a credit card may not be the best way to go for paying your rent.
What to consider before paying rent with credit
From 10,000 feet, it’s difficult to see the drawbacks of paying rent with a credit card. More points, greater flexibility, longer credit history — what’s not to like? Here’s what you have to consider:
Maybe you pay rent through an online portal. Maybe you pay a roommate. Maybe you cut a check direct to your landlord. Point is, every rent payment system is different, and the implications of a credit card vary between them. Services like Plastiq, RentShare, Cozy, and PayYourRent can handle the middle-manning, but someone will always be responsible for processing fees that can be as high as 3% per payment. If you incur those fees, they can negate any cash back or rewards you’re earning from the transaction, for instance if you’re using a cash back credit card with a 2% cash back rate you would get $20 for your $1,000 rent payment but still end up paying $30 in fees, resulting in you being out of pocket for $10. Asking your landlord to cover those isn’t exactly the fastest way to his or her good graces — doubly so for a roommate.
Depending on your available credit, paying rent with a credit card could mean less flexibility, not more. By pushing such a large payment to your card and running up against your credit limit, you potentially forfeit the large payments that could crop up later in the month. Plus, if you end up carrying a balance due to the added strain on your credit card, you may get stuck with interest fees.
Your credit score
Your credit utilization ratio – the amount of credit you’re using divided by the total amount of credit you have available – is a noteworthy component of your credit score. Optimally, you’ll want to keep it hovering around 30% to maintain a healthy credit score. By shuffling your rent over to a credit card, your credit utilization ratio may suffer.
Think about it: $1,000 in monthly rent can eat into an ample amount of your available credit. So If your card offers a $5,000 credit line, that’s already a 20% utilization without accounting for the rest of your monthly expenditures.
It’s easy to see why landlords might be hesitant to accept credit as a form of payment: It’s credit, not cash. Most want a guaranteed payment to show up on time, every time, without any worry of non- or late payments. To boot, a landlord could see legal consequences behind accepting credit card payments. Technically speaking, any payment you make with a card is guaranteed by the card issuer — not you. And because it’s your name on the lease, landlords may be hesitant to introduce an unlisted third party to a legally-binding contract.
So, when is it a good idea?
To some, convenience is everything. If your credit limits are high enough, your landlord or leasing agent accepts credit card payments, your income is stable and you’re willing to stomach the processing fees, feel free to pay with a credit card. As long as your credit utilization stays in check.
Additionally, there are some credit cards that offer extraordinary rewards and some with pretty hefty spending minimums to match. Quick arithmetic can tell you if it’s worth incurring the processing fees to reap the rewards. If you’re looking for a way to meet a spending minimum, your rent is the fastest way to get the job done.
In even rarer cases, an apartment complex or business park may offer to cover the processing fees on your behalf. And, landlords with multiple vacancies may be willing to extend a promotion to get you in the door.
The final word
In a few special circumstances paying rent with a credit card could be an advantageous way to collect points and meet your minimums along the way. Barring that? A credit card is better saved for the purchases that won’t hassle you with processing fees or legal implications.
Stick to the regular day-to-day purchases and smaller recurring payments, and let your checking account handle the rent.