Should We Pay Rent Via Credit Card?

Hey merry goers,

I'm going to be focusing more on my blog this year and also looking into more tips to share with all of you. Let's start with a little insight into credit card spending and property. For those of you who are renting a place to stay, how do you pay your rent? Should you pay it via credit card?

Especially for my friends who are currently residing in Singapore, we can see many Singaporeans purchasing condominium or HDB unit or even BTO for their own stay and there are various payment options offered to buyers. How about renters? Renter also made up a significant market in Singapore as well but payment type is not as creative as buyers. Recently, in Singapore, there are two startups have been gaining attention by allowing consumers to pay their income tax and rent. Having the thoughts of earning your credit card miles while paying your rent seems attractive but it may be a hefty cost. Furthermore, you are more likely to shun away from paying your rental through credit cards. So, does paying rental through credit card makes it worthwhile?

In most cases, the cost of paying rental via credit card outweighs the potential rewards. Imagine you’re paying your HDB in Toa Payoh rental for an amount of $2,500 a month, the number of mileage that you have earned every month from just paying your rental. But it comes with a cost at least from 2.6% of the total payment amount and by paying $2,500 a month with additional $65 for convenience of using credit card. Well, if the credit card balance is not fully paid by end of month, you will incur additional charges for interest, which can be as high as 25%.

The main reason signing up for credit card is because of the generous card rewards privilege and benefits. While the rewards can be generous, but it is not substantial enough to cover the 2.6% fee charged by third party. For instance, the Miles credit, though it offers 1.2 miles for every $1 spent. With that, a mile is roughly equivalent to $0.01 for economy class tickets that makes it recuperating less than half the cost of using the credit card to pay the rent. Even though cash back credit cards tend to have higher reward rates for at least 3% to 5%, they often limit the number of rebates that can be earned from $50 to $120 monthly. Doesn’t seems like ideal method to pay for large expenses items.

However, there’s an exception for credit card sign-up which is the credit card sign-up bonuses. Some banks’ credit cards require a high amount of spending to qualify for their sign-up bonuses. If paying your $2,500 rent is needed to hit requirements for a sign-up bonus, you will be most likely to receive more in return than the fee taken out. While most cash back and mile bonuses are generally worth around $100 to $200. Thus, if you’re paying $50 to $80, you are still benefiting from the transaction. For instance, the Citi Premier Miles Card rewards 15,000 bonus miles for those who spent $10,000 within the first 3 months of obtaining the card, on top of the 1.2 miles per $1 spent. If you are charge for extra $1,000 of rental on your card for 3 months to fit into this requirement, you could have incurred $78 in processing fee to earn $186 worth of miles (15,000 bonus miles + 3,600 miles from 1.2 miles per $1). Earning bonuses by making traditional purchases is still preferred due to your earning points that stays.

Maxing credit card with rental payment

Maxing out your credit card may hurt your credit score if you intend to pay your monthly rent. For those of you who are not familiar with credit score, the credit bureaus calculate your credit core using a factor called ‘credit utilisation’. The percentage is measured from your total credit line that you utilise month-to-month. Most importantly, credit bureaus concluded that people who constantly maximized their credit limit deserve a lower credit scores than those who don’t. Meanwhile there’s no clear consensus but most experts agree that by using more than 60% of your credit limit could hurt your credit score. Thus, if anyone who are concerned about the credit score, they should be careful and think again before paying their rent with a credit card.

Trust me, you don't want to mess with your credit score. I wasn't aware of how my credit card spending would affect my credit score until I experienced it myself. It is so easy for millennial like ourselves to rely on our credit cards to pay for purchases. Although you pay up your credit card bills on time, the amount spent using your credit card will affect your credit score and lead to affecting any loans you are applying for. This especially affects those of you who are looking to apply for housing loans.

Using credit cards for daily purchases and transactions is good and convenient because the price is the same if you’re using cash or card. Unfortunately, this isn’t the case when you’re paying for rent or income tax as the expenses usually are not paid with cards. The payment amount tends to include 2-3% fees that’s charged by credit card companies. As such, do think twice before swiping your card to pay for rent just because some startups emphasised that you can do so to earn more bonuses, but it will just inflate your costs. For now, the traditional modes of payment like online bill pay is much suitable for paying rents or income tax. In addition, for another lesson for consumers who wants to be savvier about their financial decisions. Plentiful claims made by for-profit companies often by creating alluring façade to draw interests for diverting the reality. However, not all present the full picture that should consider before making purchase.

I hope that this article gave an insight on whether you should use your credit card to pay rent or even large purchases.

Til next time,