Benefits of Paying for Renovations With Credit Cards

With home prices increasing across the United States, it’s no surprise that home renovations are on the rise. Some homeowners are choosing to stay and renovate the homes they have rather than move. Others are taking advantage of the red-hot market and are renovating to increase their home's value before listing it on the market. If you’re renovating to sell, it’s a good idea to find an experienced Realtor who can advise on renovations that will give you the biggest bang for your buck.

With low housing inventory pushing prices higher, first-time home buyers may realize their dream of homeownership by purchasing a fixer-upper and remodeling it over time. If you live in a state that allows home buyer rebates, you could potentially save thousands on your home purchase — money that can ultimately go toward your renovation budget.

It’s also a good time for investors to buy rental property in need of repair to remodel and sell for a high return on investment.

The home improvement industry reported a 28% increase in professional and DIY projects from 2020 through the end of 2021. Large remodeling projects are expected to continue to show double digit gains for the next two years.

After deciding whether to renovate your home, the next big question for homeowners is how to pay for it.

Should You Charge Home Renovations to a Credit Card?

It may sound counterintuitive to everything you’ve learned about responsible credit card use, but when used strategically, credit cards can help cover the costs of high-ticket home renovations. You may be able to use a credit card for home renovations if:

• You have enough credit available. Are you already carrying a balance on a credit card? Are you paying a high interest rate? If taking on additional debt will cause stress or bust your budget, think twice.

• You have a good to excellent credit score. With a healthy credit score, you’ll have access to credit cards that offer promotional financing or rewards. Keeping your credit utilization ratio at 30% or less will help keep your credit score in the healthy range.

• You have a plan for paying off the balance. If you’re taking advantage of a card that offers 0% APR for a limited period — 12 to 18 months, for example — you should be able to pay off that balance within the promotional window. If you’re planning to use a card with 18% APR, you should charge only what you can pay off in full each month. 

• It’s the right time. If you’re planning to move and will be applying for a new mortgage soon, you may want to hold off. Lenders don’t usually like to  see new lines of credit or a recent history of  “hard inquiries” by credit card companies into your credit history.

At least 1 in 3 homeowners use credit cards for renovations, usually in combination with cash or other financing. The majority of those users plan to pay over time, taking advantage of no or low-interest promotions.

When Does It Make Sense to Use a Credit Card?

Using a credit card for home renovations might make sense provided:

• You can take advantage of a 0% APR promotional offer. This is ideal if you’d like to spread your payments over time. Make sure you know how long the promotional period lasts — typically six to 18 months — and make sure you’re not charging more than you’re able to pay off within that promotional period before a higher interest rate kicks in.

Also keep in mind that 0% APR is different from a card that offers deferred interest. A  0% APR offer means you won't be charged interest on purchases during the promotional period. If you carry a balance once the promotional period ends, you’ll be charged interest on the balance starting from that day forward.

Deferred interest means you won’t be charged interest on your balance during the promotional period, but the interest will accumulate during this time. If you have a balance once the promotional period ends, you’ll not only be charged interest going forward, you’ll be charged interest retroactively from the beginning of the promotional period.

To avoid interest charges, make sure you pay off your balance before the promotional period ends. Big-box stores commonly offer this type of credit card promotion, so read the fine print and understand what kind of card you have.

• You can earn rewards or cash back. Using a card that offers rewards, points, or cash back can be a good way to defray costs on the front or back end of your renovation. You may be able to use cash-back rewards to pay for purchases you made on the card. Other cards may offer rewards, such as travel bonuses or the ability to use points to buy gift cards, which you can use at your local big-box retailer to purchase materials.

• You’ll get a sign-up bonus. Several cards offer a cash bonus of a few hundred dollars when you meet a particular spending threshold. That’s more “free money” to put toward your renovation project.

Ultimately, using a credit card to pay for home renovations can be a smart move if you plan to use it for short-term financing and are able to pay the balance in full to avoid high interest rates or other fees.

Benefits of Using a Credit Card

The immediacy with which you can access a credit card can be an advantage, particularly if you want to renovate quickly to take advantage of a favorable seller’s market. Home equity line of credit or personal loans typically involve more paperwork and a longer approval period. If you have good to excellent credit, you might have a credit card for home renovations within days.

A credit card’s billing cycle and grace period — the time between the last day of your statement and your payment due date — can help you strategically control your renovation costs. By spacing out purchases and paying over time, you can avoid overwhelming your budget with large balloon charges. As long as you pay the balance each month, you won’t be charged interest during the grace period.

Some cards also offer purchase protection or extended warranties on goods you buy, which may prove valuable if you need to return an item or if appliances, fixtures, and other hardware arrive damaged from the manufacturer.