Credit cards are indeed a modern marvel. Nowadays, a cardholder can pay for nearly everything, from taxes to monthly rent. While a property manager or landlord in the past may have only accepted rent payments made by cash, check, or money order, times have changed thanks to third-party apps like RentTrack and Plastiq.

While it’s convenient to pay rent with a credit card, this payment method has its fair share of additional benefits and disadvantages, including the possibility of acquiring credit card debt. However, there are pros and cons to explore.

How to use a credit card to pay your rent

Third-party payment processing platforms and apps make completing a rent payment with your credit card easy. There is a wide range of third parties to choose from, though the majority charge a service fee to process credit card payments. Here are a few of the most popular choices among tenants, landlords, and property managers.

RentTrack

Operating a monthly subscription model, RentTrack serves as a rent reporting service for tenants. RentTrack charges a processing fee of 2.95 percent for every transaction made with a credit card. RentTrack reports the rental payment history of a tenant to Equifax, Experian, and TransUnion, helping to improve the tenant’s credit report across the three major credit bureaus.

Plastiq

While joining the payment platform Plastiq is free, the company applies a 2.85 percent service fee when you pay using a credit card. Unlike RentTrack, Plastiq does not offer rent reporting services to tenants. This means a cardholder’s credit score isn’t affected by paying the rent with a credit card on Plastiq.

Avail

Avail lets paid monthly subscribers who are tenants automatically schedule next-day rent payments. To pay rent with a credit card, the software company does charge a 3.5 percent processing fee per transaction. Tenants can work on their credit score with Avail, which reports rent payments to the TransUnion credit bureau.

These apps and platforms charge varying processing fees for credit cards, streamlining the process of making a rent payment with a credit card. To figure out which to use for your rent payments, consider the additional features like rent reporting services.

Aside from becoming a member of third-party apps, an alternative method of paying the rent with a credit card involves taking out a cash advance. This payment route is not recommended because the costs can quickly add up due to a credit card’s high annual percentage rate (APR).

A cash advance option is available on many credit cards like a short-term loan.

A cardholder simply needs to use their credit card at an ATM or bank to withdraw cash, initiating a cash advance. The catch is interest charges will begin to immediately accrue on the cash advance after you receive the funds. In addition, withdrawal limits exist for cash advances, so it’s possible the cash may not even cover your entire rent payment.

What to consider before you pay rent with a credit card

As with any financial decision, it’s a good idea to take a moment to step back and consider if this is the right move for you to make. Using a credit card to pay your rent does come with the upside of convenience — the rent payment process is paperless and contactless, and you can pay from anywhere as long as you’re connected to the internet.

Certain third-party services feature a rent reporting service functionality, allowing you to cultivate your credit score by making timely payments on your rent. Additionally, you can reap credit card cash back, rewards, or points from paying rent with your card. Depending on how you value each of the previously mentioned pros, the following cons could outweigh the advantages of this rent payment method.

Excessive processing fees

A service charge of around 3 percent may appear nominal at first glance, but the fees applied to rent payments can quickly add up. For example, if your monthly rent payment is $1,500, and you choose to pay with your card using the third-party software Avail, which charges a 3.5 percent per credit card transaction, your processing fee would amount to $52.50.

Over a year, you may pay $630 in service charges alone. To many, the convenience and credit card rewards do not make the extra fees worthwhile. However, a high-income individual could find Avail’s additional tenant-friendly features that may justify these fees.

High credit utilization

Each credit card comes with a credit limit, the maximum amount you can spend on your card. Your credit utilization indicates how much credit you are using compared to your overall limit. For instance, if your card grants a credit availability of $10,000, and you have made purchases of $2,500 throughout your statement billing cycle, your credit utilization is at 25 percent.

As a general guideline, personal finance advisors tend to encourage cardholders to have a credit utilization of 10 to 30 percent. By doing this, a cardholder can maintain a healthy credit score if they also pay off their credit card statement balance in full when payment is due. Tenants with a credit limit lower than $10,000 who pay rent with a credit card may have a credit utilization above 30 percent, which could hurt their credit report in the long term.

Credit card debt

Another way to harm your credit report is to carry credit card debt monthly. A cardholder should have sufficient funds to pay off their complete card balance when the payment due date arrives if they’d like to use credit cards responsibly.

Otherwise, only making the minimum payment each month can be detrimental to a cardholder’s credit, resulting in difficulties securing other lines of credit like a mortgage or car loan. Fortunately, it is possible to repair one’s credit score over time, but the undertaking requires plenty of dedication and focus.

You are entitled to a free credit report from Equifax, TransUnion, and Experian every year. Submit a request form for each report individually or all three at once, and contact the Consumer Financial Protection Bureau (CFPB) if your application gets denied.

Does paying rent with a credit card affect my credit score?

In the past, the three major credit bureaus — Experian, Equifax, and TransUnion — did not factor in rent payments to determine a person’s credit score. However, nowadays, you can grow your credit by responsibly using a credit card to pay your rent. The first step involves you, your property manager, or landlord signing up for a third-party rent reporting service to build a credit history.

Most of these services charge tenants or landlords a fee for setup and ongoing monthly or annual fees. In addition, depending on the company, the reporting service may contact all three previously mentioned credit agencies or only Equifax and TransUnion. In particular, cardholders aiming to increase their Experian credit report may benefit from taking advantage of the credit bureau’s free product, Experian Boost.

With Experian Boost, your consistent, timely payments promote a healthy FICO Score and credit report from the eponymous credit reporting agency. At this time, however, Experian Boost does not consider rental fees when calculating the Experian credit report. Renters can still enjoy an increased Experian credit score by signing up for the product and paying bills on time for utilities and telecommunications, such as gas, phone services, and streaming platforms like Netflix and Hulu.

How can you avoid debt when making rent payments on a credit card?

A cardholder should create a budget to understand and track their monthly or biweekly income and expenses. Budgets portray a realistic picture of where your money comes and goes, allowing you to dedicate resources toward specific goals, such as a savings fund or paying off student loans.

After calculating the cost of essentials, you can see if your funds cover not only the cost of the rent payment itself but the additional service fees associated with using third-party apps. When you let your credit card statement balance continue to carry over instead of paying it in total, high credit card interest charges could start to accrue. In the worst-case scenario, you may have credit card debt and a damaged credit score.

To prevent this situation, either pay your credit card balance entirely on the payment due date or make manageable installments or total contributions during the grace period. Monitor your transaction history on your credit card regularly to catch any unauthorized charges or suspicious activity. After all, a data breach can strike a company at any given moment, from big-name retailers to a third-party payment processor.

Is it better to pay rent with a credit card or bank account?

Carefully consider your unique individual finances when determining if you should opt to complete your monthly rent payment by credit card or direct pay through your bank account. On occasion, it could make financial sense to use a credit card if you’re planning to pay the balance off in full when payment is due.

For example, if you’re working toward reaching the minimum spend for your new credit card’s signup bonus — like spending $1,000 within three months for $250 cash back — a rent payment could help your goal. The lump sum bonus would be able to offset the third-party apps’ processing fees as well. Plus, based on the value of the signup bonus, you could use all or part of the cash back rewards to pay down the following month’s rent.

In most cases, however, paying rent from your bank account is ideal. Not only can you avoid costly processing fees, but you’re effectively reducing your chances of accumulating credit card debt. Some landlords and property managers may also accept digital wallets and mobile payments from companies like Zelle or Venmo, which link directly to a bank account.

What is the best credit card for making rent payments?

Vital World Elite Mastercard offers competitive cash back rewards to empower members. Cardholders can take advantage of Vital cash rewards, where the cash back rate of 1.5% on all purchases like rent payments quickly adds up.

Additionally, Vital boasts a generous referral program, through which you receive cash rewards every month you spend at least $250 for one-time referrals.

Vital Card App features also include financial tracking tools, such as credit alerts, spending analytics, and activity notifications in real-time. Designed with security in mind, Vital Mastercard securely pairs with popular digital wallets, which include Apple Pay, Samsung Wallet, and Google Wallet.

Sources

“Credit and Debt” | USA.gov

“Credit Reports and Scores” | USA.gov

“Experian Boost” | Experian.com

Vital Card blog posts are intended for informational purposes only and should not be considered financial or any other type of advice.

Vital World Elite Mastercard is issued by Patriot Bank, N.A., Member FDIC, pursuant to license by Mastercard International Incorporated.