New Delhi: If you live in a rented house, there are some important things you should know. Did you know that paying rent online now takes just a few clicks? You can pay your house rent online and even use your credit card to make the payment to your landlord. This monthly expense impacts several factors, such as the cost of borrowing, credit utilisation, and, in some cases,s your credit score. Therefore, it is crucial to avoid certain pitfalls when paying rent via credit card. Here are some mistakes to be aware of before making the payment.
Paying Rent via Credit Card
Paying rent using a credit card is quite simple, though you may have to pay convenience or processing fees. You might incur an additional charge of around two per cent. For instance, on a rent of ₹30,000, a 2% fee amounts to ₹600 per month, or ₹7,200 annually.
Even before taxes are added, this cost could be high enough to negate the benefits of any reward points earned on the transaction. In a blog post, AU Small Finance Bank has advised comparing the additional charges against the benefits gained from rewards when paying rent via credit card.
Understanding Credit Card Limits
If your credit card limit is ₹1 lakh and you pay ₹40,000 in rent using the card, you utilise 40 per cent of your available credit limit even before accounting for other expenses. This increases your credit utilisation ratio, which plays a significant role in determining your credit score.
Consistently high credit utilisation can negatively impact your credit profile. According to Sarika Shetty, Co-founder and CEO of the fintech platform RentenPe, paying rent via credit card adds to your credit utilisation, and the resulting bill must be settled. What should have been a standard monthly expense could end up incurring heavy interest charges.
Paying only the minimum amount
It is worth noting that seeing the ‘minimum amount due’ on a credit card bill might make the payment seem smaller and more manageable; however, interest will continue to accrue on the remaining balance. If you carry over the rent payment to the next month, interest charges will begin to accumulate. Consequently, the actual cost of paying rent via credit card can rise significantly, especially if the full bill is not paid on time.
Missing the payment deadline
If you pay your rent using a credit card but subsequently miss the due date for the upcoming credit card bill, this delay can deal a blow to your credit history. Additionally, you may incur interest and other charges. According to Sarika Shetty, missing the payment due date even once can significantly damage your credit score.
