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When it comes to paying your mortgage, using a credit card won’t help you.
You might earn rewards or cash back, but the fees and potential negative effects on your credit score will probably cancel those out. As a debt management strategy, it’s more likely to sink your finances then help them.
Mortgage lenders generally don’t even accept credit cards as acceptable forms of payment. There are ways to get around this if there is an emergency, or if you stand to benefit from potential credit card rewards, but it is not the right course of action for most situations.
We asked two financial experts when paying your mortgage with a credit card makes sense and what pitfalls to watch out for.
Use a Third-Party Service, But Keep the Fees In Mind
Most banks and lenders don’t offer options for you to pay your mortgage with a credit card. They prefer that you pay with a check or automatic bill payment. “There are ways around [paying directly from a bank account], but they’re not great,” says Michele Cagan, CPA, and author of the book “Debt 101.” “You can get cash advances, but those tend to be very expensive. You may be able to buy money orders with credit cards, then deposit that money into your bank account to pay rent/mortgage — but that can also result in fees adding up.”
Another option would be to use a third-party payment service like Plastiq, which lets you pay for bills with credit cards even if your creditor doesn’t work with them. With Plastiq, you use your credit card to pay a bill, plus a 2.85% fee, and from there, a check or ACH payment is routed to your lender. It’s a popular alternative method, but you’ll have to figure out if the fee is worth it. A $1,000 mortgage payment paid this way would cost you an extra $28.50 per month. It could be a useful way to float through a tough month, but may not be a sustainable strategy financially.
Weigh the Costs Versus Benefits
Some credit cards offer cash back deals or attractive sign-up bonuses in exchange for spending a certain amount of money within the first few months of having the card.
Those kinds of points can earn you a vacation, says Benét Wilson, senior credit cards editor for The Points Guy. However, Wilson says you should evaluate the cost versus the benefit when deciding to use a rewards credit card to pay your mortgage just to earn points.
Watch Out For Credit Score Consequences
Adding extra hundreds or thousands of dollars to your credit card bill each month could have consequences for your credit history.
“Regularly putting rent or mortgage on a credit card and not paying the credit card balance will lead to much higher utilization, which will sink your credit score,” Cagan says.
Credit utilization, the percentage you spend of your allowed credit, accounts for up to 30% of a FICO credit score. Say you were putting $500 worth of purchases on your credit card each month, and your credit limit is $3,000. That is a 16% utilization rate. If you added a $1,000 mortgage payment to that $500 in spending, that would increase your utilization rate to 50%. Generally, experts recommend you not exceed 30% of your credit limit because creditors see a low utilization rate as a measure of trust that you can use credit responsibly.
There are many components of a credit score beyond utilization, but it’s something to keep in mind. A lower credit score can lead to higher interest rates on future credit cards and loans.
Pay Off Your Card in Full Every Month
If you decide to put your mortgage payments on your credit card, it’s important to pay your balance in full each month. Otherwise, interest can accumulate. A mortgage payment is already a large sum of money; combined with the credit card’s high interest rate (14.52% APR [annual percentage rate] is the average), it could sink your finances.
If you find yourself in that situation, “pick up the phone,” Wilson says. Both mortgage providers and credit card issuers have become accustomed to negotiating forbearance terms this year. “Work out something with them directly,” Wilson says.
Oftentimes, customers who make special arrangements with their creditors get fees waived, rates decreased, or payment deadlines delayed. Speaking to your lender is the first step to getting back to financial stability.
If you need an expert opinion on how to manage debt, try looking into nonprofit credit counseling firms. You can find agencies like this through the National Foundation for Credit Counseling.