Every 30 days, you dutifully shell out a big portion of your income for rent. Those responsible payments guarantee you a place to live. But if you play your cards right, you can come out ahead in other ways.
By charging this large expense (and managing your account and money wisely), you can enjoy everything from valuable rewards to a credit score boost.
As the world moves away from cash and checks, charging rent is becoming popular. “We've seen a 50 percent increase in the number of Plastiq customers that are paying for rent with their credit card this year compared to 2018,” says Eliot Buchanan, co-founder and CEO of the consumer-to-business bill-paying company.
“However, there are card processing fees involved, so rent payers should compare the costs and benefits of paying rent on a credit card to determine whether it makes sense to do in their particular situation.”
Here's what you need to know about paying rent with a credit card, and whether or not it's a good idea for you.
How it works – including fees
The procedure is straightforward if your landlord accepts credit cards. You just pay them directly as you would any other business that takes plastic. However, not all do yet.
Reason being, unlike with cash or checks, there is a credit card processing fee. It typically falls between 1.5 percent and 2.9 percent.
Another sticking point is the possibility of a chargeback. As a cardholder, you may dispute a charge and get the money returned to you as a credit, thus causing the landlord a financial headache. That's a risk some might not want to assume.
As a result, companies like Plastiq, RentMoola, SparkRental, and RentPayment.com act as intermediaries. Tenants send the rent amount (plus a fee) to the company as a charge, and they send it to the landlord in the form of a paper check or electronic transfer.
Accepting credit cards for rent payments is a win-win, says Brian Davis, director of education for SparkRental. “Landlords and property managers who accept rent by credit card offer more flexibility for their renters, with an option to stay current on their rent even if their bank account is short on the first on the month,” says Davis.
Benefits of paying rent with a credit card
For the tenant, charging rent has a few advantages:
Credit card rewards
If you have a credit card that enables you to earn rewards, you can come out ahead if you keep your debt at zero and the fees are less than the reward value.
Matt Schmidt, CEO of Diabetes Life Solutions, is currently paying a combined rent of $5,100 for two of his homes with a credit card.
“I'm accumulating credit points, which I can then reinvest back into the business,” says Schmidt. “These cash rewards can be used to run sales contests or reward key employees.” Since the fees are covered by the property owners, he makes a profit every time.
See related: Best rewards credit cards
Many rewards cards offer generous introductory bonuses, so you can open an account for the specific purpose of snapping it up.
To get the bonus, you usually have to meet the minimum spend of a few thousand dollars within the first three months of opening the card. That's relatively easy if your rent already hovers around $1,000.
For example, the Wells Fargo Propel American Express® card requires a $3,000 minimum spend within three months to receive 30,000 points – which are valued at $300.
The Bank of America Cash Rewards credit card offers a $200 sign-up bonus if you spend $1,000 on purchases in the first 90 days of opening the account.
Because neither card has an annual fee, you would make a net gain even if you had to pay the transaction fees. After that, you could switch over to checks to avoid paying those fees in the future.
Build and improve credit history
Charging regularly, paying on time and keeping the balance at zero are the swiftest ways to establish a positive credit rating. Rent is a necessary expense, so why not parlay it into a high credit score?
Arthur Ruth, vice president of operations of Memphis Maids, a house cleaning service in Memphis, Tennessee, has been paying rent with his credit card for over 15 years.
“Using your cards so much, if you pay them correctly, you can save money and even improve your credit score,” says Ruth. “That's something really important in this day and age.”
When Ni'Kesia Pannell, an Atlanta, Georgia-based journalist and entrepreneur was temporarily short on cash, she took advantage of the credit card option.
“I was in between freelance gigs and needed to pay bills,” says Pannell. “The fees were high, but at the time, it was worth it.” Once her financial situation returned to normal, she resumed paying by check.
Cash flow freedom
If your rent is due on the first of the month but your income is sporadic, you may need some extra time to accumulate it all without any stress.
“By using a credit card for my rent, I have three to four weeks to pay off the credit card debt before interest accumulates,” says Schmidt. “This provides a little leeway with my cash flow.”
Avoid late fees
If you don't pay your rent on time, the landlord may charge you a late fee – which can be assessed at 5 percent of your rent payment or more.
“It's nice to have the flexibility to charge your rent as an option if you hit a particularly tough month,” says Davis. “If tenants find themselves stretched too thin financially one month, it's cheaper to charge their rent than let it go late – and it keeps them from falling behind and souring their relationship with their landlord.”
Disadvantages of paying rent with a credit card
While paying with a credit card has its advantages, there are a few drawbacks to consider as well:
In the event you are responsible for the credit card processing fee, you're looking at an increase in your monthly obligation. If the value of your credit card rewards doesn't surpass the fees, you will lose – not gain – money.
To know if it makes financial sense, look at your card's rewards program and compare them to the transaction fees you'll be charged.
If the fee is 2.5 percent of the transaction, and you're earning 1.5 percent in cash back, you're losing 1 percent every month. So, for example, you'll be out $15 for a $1,500 rent payment.
“It may not sound like much, but over time, it adds up,” says Ande Frazier, editor-in-chief of MyWorth, a financial education media company. “And if money is tight, [it will impact] what you should be spending on, [like] something essential.”
Credit card debt
As convenient as it is to rely on a substantial credit line when you need it, it's also easy to overborrow.
Elevated interest rates and low payments will put you into a deep hole. “It's a vicious cycle,” says Frazier. “That debt will grow and grow, and the compounding interest will be huge. If you can't afford your rent, you're living in the wrong place.”
Credit scores consider the amount of debt you owe and weigh it against the amount you can borrow. If you hit your limit and the balance stays anywhere near it, your scores will sink. Skip payment cycles and those scores plummet further.
This puts you in a terrible position if you have to move. Almost all landlords check credit reports to see if you're a low-risk tenant. So, if they see excessive debt and a pattern of missed payments, they may pass you over for tenancy.
Regulations and best practices
If, after weighing your options, you decide to give charging your rent a try, approach your landlord first. Find out if they have any practices in place so you can pay them directly with your credit card.
Larger property management companies are more apt to accept them than individual landlords, but it's worth an inquiry. It couldn't hurt to also ask if they'll absorb the fee.
Regarding third-party companies, review a variety of them, paying close attention to the fee structure (which typically ranges from 2.6 percent to 3 percent of the payment).
You should have no trouble paying any landlord with a credit card if the third party sends your rent with a paper check. It's the same as if it were coming straight from your own checkbook. However, if the company sends payments electronically, your landlord would need to register for an account so the money can be deposited.
If you do start regularly paying your rent with a credit card, make sure you always have the money in your checking account to cover the payment when the bill is due.
“You have to be disciplined,” says Schmidt. “Automate your payment so it pays off your whole debt when it should. And if you get the rewards as I do, plan for what you'll do with them. It's potentially worth a lot of money!… Do something smart with it.”
And, of course, that may include using the proceeds to reduce the cost of your rent.