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Paying rent these days is a struggle. More Americans are feeling underwater with their bills, and 21.6 million households that rent are what Harvard’s “The State of the Nation’s Housing 2023” report deemed “cost burdened,” meaning they spend more than 30%of their income on housing. Indeed, 11.6 million of those households were severely cost burdened, spending more than 50% of their income on housing.
It’s perhaps little wonder, then, that many Americans think about charging their rent on a credit card. Before paying for your housing on credit, read the following.
Things to consider before deciding to pay rent with your credit card
Not all landlords will let you pay for rent using a credit card, but if yours is open to it, is it something you should do? The quick answer is almost certainly not. Why?
It adds to your debt
While it may be convenient to charge your rent, American consumers already have ballooning amounts of credit card debt, a total of $866 billion as of September 2022. It’s ill-advised to add to it due to high interest rates.
If you’re not carrying any debt now, that doesn’t mean you won’t at some point in time. Few people always completely pay off their credit cards every month. The higher the balance you carry on your card, the more you will be paying in interest for the use of the loan. And it can lower your credit score by raising your credit ratio.
It creates uncertainty of outcome
If you’re using third-party apps to pay your rent, you’ve suddenly introduced uncertainty into the process. The app will have control over your method of payment. Should it choose to freeze your account for any reason, you could miss a rental payment. Furthermore, with an app it’s easier to accidentally send your payment to the wrong place than with traditional methods of payment, such as handing over a check or arranging for electronic payment from your bank account.
It can generate fees
Landlords who accept rent payments by credit card sometimes add a fee. This is because credit companies will charge the landlord a processing fee, which they might decide to pass on to you.
The same goes for landlords that agree to process credit payments through third-party apps: There can be a transaction fee that’s ultimately paid by you, the tenant. The amount varies. For instance, Story by J.P. Morgan, a management system for landlords, allows for credit payments without a fee. In contrast, third-party apps such as Venmo and PayPal charge fees around 3%.
Factor fees into any cost-benefit analysis you make. Does it still make financial sense to put your rent on credit? Do the benefits outweigh the cost and risks over whatever alternative options you may have?
When does it make sense to pay rent with your credit card?
In theory, renters trying to reach the minimum purchase requirement for an introductory credit card offer might have a reason to pay rent with that card. If you put the rent on the card and pay it off more or less immediately—before interest kicks in—you might be able to accrue reward points without adding new expenses.
Cash back is another reason to consider paying rent with a card, but it’s likely the fees will be more than the cash back. Do the math.
As a general rule, though, the likely fees and possibility of getting hit with interest make using credit unattractive. You should be very confident that the benefits will outweigh the costs.
3 ways to pay rent with your credit card
Cash App, a popular mobile payment service, allows users to attach a credit card. This would let you automate rent payments on a credit card, provided your landlord will agree to take payment this way.
There’s a fee attached, though. Assuming your landlord is using Cash App’s small-business account, called “Cash for Business,” that fee is 2.75% per payment, which is relatively common for these types of transfer apps.
Another popular digital money transfer service, PayPal, also allows you to set up credit card payments for rent. While there aren’t fees for payments directly from a bank account, credit and debit payments incur an extra 2.99% and a fixed fee.
MoneyGram, which also facilitates money transfers and payments, is another option. The service lets you use a credit card. However, payments are capped at $3,000 per 30 days, and they will involve a fee ranging from $1.99 to $12.99.
TIME Stamp: Paying for rent on a credit card is risky and pricey
In general, choosing to charge your rent, one of your largest household expenses, can trigger interest charges on your credit card. It can also prompt processing fees from either the service you use or the landlord.
If you are absolutely certain that you can pay off the card in full every month and avoid interest charges—and that by charging your rent you will get enough rewards points or cash back to make the transaction profitable—perhaps you should consider it. Otherwise, don’t do it.
Frequently asked questions (FAQs)
Can I boost my credit score by paying rent with my credit card?
Putting rent on credit could impact your credit, but unless you set up a service to report your rent payments to credit bureaus, it likely won’t. And even if you do set up that service, not all reports would incorporate rent payments. Moreover, if you use up your available line of credit—without paying it off—to make rent payments, it could actually lower your credit score.
Can I pay bills with my credit card?
Yes, you can. Most service bills you have will let you set up payments on your credit cards. Whether this is a good idea is a separate question. Ask yourself whether you can regularly pay off the cards. If you can’t, they’ll accrue extra interest, digging you into a hole.
Can I buy a car with a credit card?
There’s no standard policy here. Some dealers will allow you to buy a car on credit, while others will not. As with all other purchases on credit, it’s important not to fool yourself into thinking that credit is extra money. It’s a loan on which you’re paying interest.
Putting a car on credit would, in almost all situations, be a hard decision to defend, as the interest rate on the card would be considerably higher than the interest rate on an auto loan. Bank of America has auto loan rates at 6.29% as of August 2023, while the average credit card rate was 22.16% as of May 2023, the most recent date reported.
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