Nowadays, consumers can pay most of their bills with a credit card. Even stores that used to require cash or debit cards allow credit cards. But one hurdle remains rent. Many tenants still have to use old-school checks to pay rent, even when credit cards are almost universally accepted elsewhere.
Read below to find out if you can pay rent with a credit card and why you might not want to.
Can I Pay Rent with a Credit Card?
First, ask your landlord if you can pay rent with a credit card. Unless you pay rent to a large property management company, you won't have the option of doing so. Most landlords still prefer being paid by check, although some do allow Venmo or PayPal payments, provided you use your bank account as the source.
If your landlord doesn't have a credit card processing option, you can use a service like Plastiq which sends checks to recipients and bills your credit card. However, you'll be paying more to do this as Plastiq has a 2.5% processing fee, similar to other online bill payment services.
Why Would You Want to Pay Rent with a Credit Card?
Most of the time, people want to pay rent with a credit card because they earn travel, cash-back or other rewards by using their credit card. Cash-back rewards range from 1-3% so if you pay $500 in rent, you can earn between $5-$15 when you pay your rent using a credit card.
Many cards offer sign-up bonuses if you spend a certain amount with 90 days and for some people, that minimum can only be reached if they pay rent with the credit card. If you sign up for a credit card with a $200 bonus if you spend $5,000 in three months, putting your $900 rent payment can help you reach that minimum spend.
Some tenants also want to use a credit card if they don't have access to cash at the moment and need more time to cover rent. Paying with a credit card gives you more leeway than taking cash out of your checking account (though this is a bad habit to get into).
Unfortunately, even if your landlord or management company lets you pay with a credit card, you might not want to. Any time a credit card transaction goes through, the merchant is charged a processing fee. Most stores and retailers pass along these costs to consumers in the form of higher prices. Your landlord will usually require that you pay the processing fee for them.
That processing fee will be between 2.5%-2.9%. If your rent is $1,200 a month and your processing fee is 2.5%, you'll pay $30 every time you swipe. If you use a credit card for a year, you'll pay $360 total, which is 30% of your monthly rent payment. So any rewards you get could be canceled out.
Given that, paying rent with a credit card may not be a good idea, unless you're earning significant cash-back rewards that exceed the processing fees. If you get 5% cash back when you pay rent with a credit card, then you'll probably come out ahead. Otherwise, it's still best to use a check. Also, if you can only reach a credit card bonus by paying rent, you might come out ahead even after fees.
One instance when paying rent with a credit card could be a good idea is if it will help you to avoid taking out a title or payday loan. Short-term loans like these can trap you in a cycle of debt that can take months or even year to get out from under. If this scenario applies to you, putting rent on a credit card may be a better alternative for an emergency situation. Planning ahead with an emergency fund is a good way to avoid having to make tough decisions like this one.
Why Paying Rent on a Credit Card Might Be a Bad Idea
When you put a large purchase, like rent, on your credit card, it can increase your credit utilization ratio. Your credit utilization is how much credit you've used compared to how much is available. Using more than 30% of your total credit will lower your credit score because credit bureaus will assume you can't afford to pay your bills without a credit card.
A monthly rent payment can easily be more than 30% of your credit limit. If you have a credit card with a $5,000 credit limit and your monthly rent payment is $1,000, you'll hit 20% every time you pay rent. Add in groceries, gas and other expenses you charge to the card and you'll reach 30% quickly.
The credit utilization ratio is the second-highest factor that affects most credit scores, with on-time payments being the first. If you're using too much credit every month, your score will decrease over time. Prospective lenders may deny a new credit card application or charge higher interest rates if they see a high utilization.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on August 14, 2018, and has been updated.