How to use rent payments to score welcome bonuses

Plenty of credit cards come with generous welcome offers. Consider the Chase Sapphire Preferred Card, which has a welcome offer of 60,000 bonus points after you charge $4,000 in purchases within the first three months of opening an account. And the Citi Rewards+® Card has an offer of 20,000 welcome points after spending $1,500 within the first three months (redeemable for $200 in gift cards at thankyou.com).

Those are valuable bonuses – but you have to put sizable expenses on a new card to score them. One way to accomplish that is to charge a regular expense you don’t normally pay by credit. Does it make sense to pay your rent with a new credit card to reach the spending requirements for that bonus? After all, you’ll spend that cash on rent anyway.

Not surprisingly, the answer is a definite “maybe.”

How to use rent payments to get a welcome bonus

A good credit card welcome bonus usually comes with a spending requirement. Some cards require you to spend relatively little, maybe $500 within the first 90 days of opening your account. Others, though, require bigger spends, like that $4,000 in the first three months for the Chase Sapphire Preferred bonus.

Charging your monthly rent to a credit card can help you meet these spending limits. You simply charge rent with your card, then pay it off with the money in your checking account.

But there are caveats. First, this only makes sense if you can pay back the entire amount you charge in one payment. If you can’t, and you carry a balance from one month to the next, the interest you’ll pay on the amount owed will almost certainly outweigh the financial benefits of your credit card’s welcome bonus.

“Interest should always be considered,” says Hutch Ashoo, Pillar Wealth Management co-founder. “Credit card transactions have a substantially higher APR than most of the other types of loans. As a result, if you don’t pay off your bills in full by the end of the month, you might expect to pay a significant amount in interest.”

As Ashoo points out, the average APR for credit cards is about 17%. If you charge rent and don’t pay it all off when your credit card bill is due, you could end up paying hundreds of dollars in interest.

And don’t forget, rent payment portals typically charge a service fee for accepting rent payments by credit card. That additional fee could make charging your rent a bad financial move, even if it does help you earn a welcome bonus.

Also, read the fine print about sign-up bonuses in the card’s terms and conditions. Some cards may not consider rent payments qualified purchases. If they don’t count toward the minimum spend requirement, they won’t help you get those bonus cash-back or rewards points.

When to pay rent with a credit card

Let’s use the example of the Chase Sapphire Preferred Card. You’ll earn 60,000 bonus Ultimate Rewards points if you charge $4,000 of eligible purchases on your card during the first three months. That 60,000 points bonus offer is worth up to $750 if you redeem those points for travel purchases made through Chase Ultimate Rewards.

Say you pay $1,200 in rent each month for your apartment. If you charge three rent payments, you’ll rack up $3,600 in purchases in those first three months – just $400 short of qualifying.

Good move, as long as you pay off your charges in full by the end of each billing cycle, right? Unfortunately, it’s not that simple.

You also must consider any fees your landlord will charge for taking rent payments by credit card. Most landlords charge a processing fee of 1.5% to 3% to accept rent payments through credit cards. If your monthly rent is $1,200, you’ll pay $18 to $36 each month in processing fees. That adds up to an extra $54 to $108 over three months.

Darren Nix, founder and president of Steadily, an Austin, Texas-based provider of landlord insurance, said cardholders need to do the math when determining if charging rent makes sense.

Nix gives this example: Say you need to spend $3,000 to get your card’s $500 welcome bonus and your landlord charges 3% of your rent payment as a processing fee. If you charge the entire $3,000 in the form of rent payments, you’d pay $90 in processing fees. That leaves you with a net gain of $410 from your welcome bonus. That makes financial sense.

But Nix warns that cardholders need to read the fine print in their credit card agreements to make sure charging rent payments will help them reach their welcome bonuses.

“One other thing credit card users forget is that they must spend $3,000 in qualified purchases,” Nix said. “Sometimes these rewards programs will not allow rent to count toward awards.”

You can also factor in the cash back bonuses or rewards points you’ll earn when charging your rent. Unfortunately, you won’t earn much with rent payments.

Many credit cards offer 5%, 3% or 2% cash back for every dollar spent at restaurants, gas stations or supermarkets. But when you charge rent? That usually falls into the less lucrative “all other purchases” category when it comes to rewards points or cash back bonuses. Typically, you’ll only earn 1% or 1.5% back on rent payments.

Say you pay $1,000 a month in rent. If you earn 1% cash back on that amount, you’ll generate just $10 on that payment. If you earn one point for every dollar spent on rent, you’d earn just 1,000 points. Cash back or rewards offers like these usually won’t generate enough money to make charging your rent worthwhile – unless you are charging your rent to help reach a lucrative welcome offer.

By the numbers

Wondering whether charging rent makes sense for your card’s welcome bonus? Get ready to do the math.

Here’s an example: The Bank of America® Customized Cash Rewards credit card offers a bonus of $200 online cash rewards if you make at least $1,000 in purchases during the first 90 days of opening your account. If you pay $1,000 a month in rent and charge one month of rent, you’d earn that $200 bonus quickly.

But you have to include any processing fees. If your landlord charges a 3% processing fee and you put $1,000 in rent on your card, that fee adds $30. That means you’re ahead $170 if you qualify for the cash back welcome offer.

Of course, that doesn’t necessarily mean charging your rent makes sense in this situation. You could also hit your $1,000 in required spending by charging other qualifying purchases to get a $200 cash back bonus without paying any processing fees to your landlord. In such cases, it usually makes more sense to use your card on purchases that won’t cost you extra in processing fees.

Here’s a chart showing three real-life examples using different rent amounts and a 3% processing fee.

Should you pay rent with a credit card?

Jenna Lofton, certified financial advisor and founder of stock trading blog Stock Hitter, says using a credit card to pay for rent comes with risks, even if doing so will help you qualify for a welcome offer.

The biggest risk: If you can’t pay off the rent you charged by your credit card’s due date, you’re then charged high interest on the amount you haven’t paid.

Then there’s your credit utilization ratio. This ratio measures how much of your available credit you are using at any one time. The higher this ratio, the worse it is for your credit score. If you charge a lot of rent to earn your welcome bonus and you can’t fully pay it off at the end of the billing cycle, your credit utilization ratio will increase.

And if this causes your credit score to drop, you could face higher interest rates on auto loans, student loans and new credit cards. The extra interest you’ll pay could easily outweigh that welcome bonus.

“You still need to pay off your balance each month,” Lofton said. “If you don’t do so, all of those rewards will be lost because they’ll come at the expense of a higher credit utilization ratio.”

Bottom line

Does charging your rent to earn a welcome bonus make financial sense? It can if you pay off what you charge in full each month and will turn a pretty profit despite the fees. Review the terms and conditions of the welcome bonus offer for the card you’re considering and make sure rent payments count toward the spending requirement.

And remember, no welcome bonus is worth the extra interest you’ll pay if you don’t pay your credit card in full each month after charging rent.