A credit card is a financial tool that serves multiple purposes in times of a monetary crisis, right from shopping to bill payments to groceries and more. The latest to join the list was rent payment using credit cards. The service became popular as many platforms including Paytm and Cred came out with the feature enabling users to pay house rent using their credit cards. The platforms charge around 0.4 to 2 per cent for this service.
House rent is a major expense for the salaried class. Credit card owners often pay rent using this credit tool as it allows quick payment and helps avoid ATM cash withdrawal hassle. People also use this feature in case they fall short of cash.
Some people also used to pay house rent using their credit cards to earn reward points. However, the reward point used to come at a cost of service charge levied by the facilitator platforms like Cred etc. Also, since there was no mechanism in place to verify that the users were paying rent actually to landlords and not to their relatives/friends in order to convert the desired credit amount to cash, the banks thought of curbing this alleged malpractice. Therefore, the ICICI Bank has now come out with a one per cent charge provision for its credit card users who pay rent using the card.
But should you pay house rent using credit cards?
Experts suggest that one should avoid paying house rent using their credit cards. They say that since rent is a fixed expense and not a sudden expense, it should be a part of the monthly financial planning.
“House rent is a fixed and foreknown expense and not a sudden expenditure. One should keep house rent as a compulsory component of their monthly budget planning. One should understand the proper usage of credit cards. We use credit cards in times of unexpected expense, for shopping if we don’t wish to carry cash, for fuel payments to earn cashback or rewards, or if a person is sure that s/he would be able to make a credit card payment on time. People also use a credit card to pay rent to earn rewards but there are no other benefits. And since service providers and banks now charge for the service, there is no point in using credit cards for the rent payment when you will have to make additional payments over the usage,” said Pankaj Mathpal, Founder and Managing Director, Optima Money Managers Pvt. Ltd.
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Another biggest drawback of using a credit card to house rent payments is that if you miss the bill payment by the due date, your credit score can take a hit. Also, since house rent is a large expense, it will lead to a higher credit utilisation ratio if you use the card for other expenses as well. If your credit card utilisation ratio is over 30% of the prescribed credit limit, then your credit score will also plummet.
Also, while a user gets an interest-free period on credit cards, missing a bill cycle attracts a higher interest rate on the amount used. Thus, it’s better to smartly plan your monthly budget and fund your house rent from your salary/income only.