Can I Pay Rent With a Credit Card?
If you are applying for your first credit card, you're probably wondering about the best ways to use it. If you already have a credit card, maybe you're wondering what else you can do with it. Or perhaps you're wondering if you can earn cash back or other credit card rewards by using your card to pay rent.
Many first-time credit card holders wonder if they can pay rent directly with their credit cards. They also wonder if it's a good idea to pay rent with a credit card. Will it boost your credit or hurt it? What are the benefits and the risks?
Credit card debt is a problem for millions of Americans. For that reason, it's a good idea to approach credit card use with caution. Build good spending habits early. They will save you from trouble later in life.
Also read: How Many Savings Accounts Should I Have?
Can I Pay Rent With a Credit Card?
The short answer to this question is yes. You can pay rent with a credit card. Rent payments are less common than other types of credit card transactions, but they are not unheard of. Even if your landlord doesn't accept payment by credit card, there are third-party services that can help you pay your rent with plastic (for a fee.)
The more important question you should be asking yourself is "should I pay rent with a credit card?"
There are benefits and risks associated with making rent payments via credit card. Paying rent by card may seem like an easy way to earn rewards or even boost your credit score. Unfortunately, there are risks involved. Before you start paying rent with your credit card, make sure you understand the potential risks and downsides.
Five Ways to Pay Rent With Your Credit Card
It's rare, but some landlords can accept electronic payment. Even if your property manager doesn't accept credit cards, there are other ways to pay rent with your card. Using a third party payment service is the easiest workaround. Many online payment options can facilitate this.
Paying Directly to Your Landlord's Account
Why Don't Most Property Managers Accept Credit Cards?
Many landlords do not accept rent payments by credit card. Why? Simply put, it costs money to take a credit card payment. In order to accept credit card payments, most small businesses must incur a transaction fee. This is why places like coffee shops and convenience stores often charge a $0.50 fee on top of any credit card payments under a certain amount.
Another issue that landlords face when accepting credit cards is potential chargebacks. A chargeback is a service provided by major credit bureaus that protects credit card users from fraudulent purchases. It allows the credit card owner to dispute a payment and get their money back if the payment is found to be fraudulent.
Unfortunately, some people abuse this service by claiming that rent payments are fraudulent. Even if the dispute is eventually resolved in the property manager's favour, the headache simply isn't worth it for landlords.
Finally, credit card companies rarely process payments on the same day that a credit card is used. Generally, there is a gap of 3-5 days between the payment date and the date that the money is deducted from your account. For a property manager who relies on your rent payment for their income, this can cause problems should a financial emergency arise.
Which Property Managers Accept Credit Cards?
If a large property management company manages your house or apartment, there may be an online bill payment service. In this case, a credit card may be an available payment option. Some places even allow you to make automatic payments for your rent.
Check with your management company to find out if they provide an online service for rent payments.
Also read: Saving $10,000 in a year
Plastiq is a service that allows you to pay for services by credit card, even if the receiving party doesn't accept credit card payments. It's free to sign up, and all major credit cards are accepted. Your landlord doesn't need to have an account for you to make payments, but he or she will need to sign off on received payments.
To pay your rent using Plastiq, simply create an account and add your card as the primary payment method. When you make a payment, Plastiq processes it and then pays your landlord by either check or ACH payments.
The downside of using Plastiq is the processing fee. Plastiq charges you 2.5% on every transaction. Over a year, this could add up to well over $1000. Even if you earn points on every transaction, the rewards might not offset the fees.
If your landlord has a PayPal account, they might accept rent payments through that. Since PayPal allows you to hook up your credit card as a payment method, this would be one way to pay your rent via credit card. PayPal accepts all major credit cards.
Whether or not this method will work for you depends entirely on whether your landlord has a PayPal account, and whether they are willing to accept rent payment via PayPal.
While it's possible that your landlord will take a rent payment through PayPal, it's unlikely. Why? Fees. The drawback to accepting payment via PayPal is the processing fee. PayPal charges a processing fee of 2.9% of the transaction, plus $0.30. While 2.9% may not sound like much, it quickly adds up.
Consider that 2.9% of $3000 is $89. If you are a landlord accepting $3000/month, then the transaction fees you would accrue annually by accepting one person's rent through PayPal would total $1068! Multiply that by the total number of tenants one landlord might have, and you can see why your landlord might be unwilling to accept payment by PayPal.
Also read: How to Provide Proof of Income
Venmo is an online service similar to PayPal. Many people prefer to use Venmo over PayPal to send money because there is no processing fee when you send money from your debit card or directly from your bank account.
Unfortunately, Venmo does charge a fee when you pay by credit card. Their processing fee is 3.0% on every credit card transaction, which is slightly higher than PayPal.
The added downside of using Venmo to make rent payments is that Venmo is not yet as widely used as PayPal. While almost everyone has a PayPal account these days, fewer people use Venmo. You may love your Venmo account, but your landlord may have never even heard of Venmo.
RadPad is similar to Plastiq, but rather than facilitating payments for all types of services, they only deal with rent payments. All major credit cards and Apple Pay are accepted, and it's free to sign up. Unlike Plastiq, your landlord does not have to sign off on receiving payments through RadPad.
RadPad charges 2.99% on all credit card payments. You can also pay with your debit card or by ACH transfer. The fee for paying with a debit card is $4.95 on all transactions under $5000 and $9.95 for transactions over $5000. ACH transfer is free.
Should I Pay Rent With a Credit Card?
While it's certainly possible to pay rent with a credit card, it's not always a smart idea. For first-time credit cardholders, in particular, the risks of paying rent with a credit card can easily outweigh the benefits.
If you are an established credit cardholder who has experience managing your credit card payments, then using your credit card to pay rent might be a good option. However, if you are a new credit cardholder, it's best to learn how to manage your personal finance before attempting to use your card for major payments like rent.
Advantages of Paying Rent With a Credit Card
Paying rent by credit card can provide some degree of flexibility. If you don't use paper checks for anything else, it can be nice to get rid of checks altogether by paying rent with a credit card.
Paying rent by card is also a way to change the timing of when the rent payment gets deducted from your bank account. Perhaps you don't get paid on the first of the month and would prefer to pay rent later in the month when your paycheck arrives. Charging rent to your card allows you to control when the money leaves your account.
You should never use a credit card to cover expenses if you don't know when you will have sufficient funds to cover rent. Charging expenses to a credit card when you don't have money to pay it off will lead to interest charges down the road.
It can be very difficult to get out of the cycle of charging things you can't afford to a credit card and then having to pay off interest charges later. Credit card debt is a major source of stress for millions of people. Avoid that stress by not getting into bad habits in the first place.
If you have a rewards card, you can earn rewards by paying rent with a credit card. Before you get too excited about this prospect, make sure you understand how the rewards points work for your credit card.
Most credit cards offer only 1-2% cash back on general purchases. Although many cards offer as much as 5% on other purchases, your rent payments won't qualify for that percentage. If you're using a third party service to help you pay your rent with a credit card, the rewards you'll earn won't even cover the transaction fees.
If your landlord or property management company accepts credit card payments directly (without a fee), then earning rewards may be a worthwhile incentive. Only use your rent as a way to earn rewards if the percentage you'll get back on the payment is higher than the fees you'll incur.
Welcome Bonus Points
There's one situation where paying rent to earn credit card rewards makes sense. That is if the card offers an introductory bonus. In this case, rent payments could be a quick way to rack up the amount needed to earn the introductory bonus points.
Let's say, for example, that you just signed up for a credit card that offers $500 cash back if you spend $4000 in the first three months. If your rent is $1500 per month and you charge your rent to the card for the first three months, you'll spend $4500 total and qualify for the bonus.
Before you do this, make sure that you have a way of paying off the card. Never charge expenses you can't afford with a credit card.
You should also make sure you have a system in place to make credit card payments on time. Consider setting up automatic payments on your card before making any purchases. Late fees can be almost as destructive as interest charges and should be avoided.
Also read: How Do You Calculate Net Pay?
Disadvantages of Paying Rent With a Credit Card
There are many reasons that using a credit card to pay your rent is a bad idea. In fact, most people believe that the risks far outweigh the potential benefits.
As previously mentioned, processing fees can add up quickly if you're using a third party service to manage your rent payment. Even if you're using rewards credit cards to pay your rent, you probably won't earn enough in rewards to cover the fees.
Be wary of companies that allow you to make credit card payments to services that don't normally accept them. These companies make a profit by charging you a fee for every transaction. They might offer a very enticing introductory rate, only to jack up prices later on down the road.
The primary risk in using a credit card to pay rent is accruing interest. The only way to avoid accruing interest is to pay off your complete credit card balance at the end of every billing cycle. You also run the risk of incurring late fees if you don't make payments on time.
While interest may seem like a small percentage of your credit card bill, it can add up quickly over time. Additionally, a credit card company might increase your interest rate after a certain amount of time. Your credit card might have 0% interest for the first year, but after that, interest rates could skyrocket to as much as 25%.
Once interest starts piling up, it can be very difficult to pay off. Never use your credit card to pay for things you can't afford. That includes your rent.
Risk to Credit Scores
You may be wondering if using a credit card to pay your rent is a good way to improve your credit score. Unfortunately, the answer here is a resounding no. Paying rent with a credit card can actually hurt your credit score.
Credit scores are primarily determined by something called a credit utilization ratio. Your credit utilization ratio is the amount of credit you've used, compared to the amount of available credit you have. The ratio is expressed as a percentage.
For example, let's say you have a credit card with a credit limit of $10,000. If you use $5000 of that credit, your credit utilization ratio is 50%. It's recommended to keep your ratio around 30% to avoid negatively affecting your credit score.
Sometimes using a large percentage of your credit is unavoidable. You may need to charge a large amount to your credit card in an emergency. As long as you quickly pay off the full balance your credit score should bounce back.
The damage to your credit score from a high utilization ratio should only be temporary. Making monthly rent payments, however, could keep your ratio above 30% for a long time. This is especially true if you have a low credit limit.
Using Rent to Improve Your Credit Score
It is possible to improve your credit score by paying rent, and you don't need to charge rent costs to a credit card. You can easily report your rent payment to credit bureaus, or even have your landlord report it for you.
Most people prefer to report their own payments as it gives them more control over the process. Services like CreditBoost can help you to report your monthly rent payment to any of the three major credit bureaus.
Personal finance management is up to the individual. That said, it can be easy to get into debt if you don't understand how credit cards work. Credit card debt in the United States is a problem for many people. The average American family owes over $6000 in credit card debt. It's important to start building good credit card habits early to avoid getting into trouble later.
Even if you do have good spending habits, the benefits of using a credit card to pay your rent rarely outweigh the risks. Those risks include processing fees, interest charges, and potential damage to credit scores. These are all great reasons to avoid using your credit card to pay rent.
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