Using a credit card to finance home improvements

It can certainly be tempting to use a credit card or two to finance your renovation dreams. But if you plan to pay for projects this way, the key is to choose the right type of card, taking into consideration such factors as interest rate and rewards program offers.

Benefits of using a credit card to fund home improvements

There are many options to fund home improvements, including home equity loans, a home equity line of credit (HELOC), personal loans, and, last but not least, credit cards. When used responsibly, there are several potential upsides to using a credit card for this type of expense, including earning bonuses, 0% interest to finance your project, and even extended warranty protection provided by the card for free.

Welcome bonuses and rewards programs

Many credit cards offer substantive welcome bonuses to people who meet specific spending requirements or thresholds within the first weeks or months of opening the account. This means if you open a credit card specifically to fund home improvements, you could earn a large amount of cash back, points, miles, or other valuable rewards.

“For those who have accounted for their total renovation budget, considering a new account or credit card might be a great way to capture a helpful welcome bonus and extra rewards—in the form of cash or points—that can be used to offset the cost of home improvements,” says Chris Fred, head of U.S. credit cards and unsecured lending for TD Bank. 

If this is your plan, be sure to do your homework on the card issuer and its bonus program before applying for a new card. You’ll want to make sure you understand all the ins and outs of qualifying for the bonus to confirm that you will likely be able to meet the requirements.

Additionally, it’s important to ensure that you have the ability to easily redeem the rewards offered by the program, whether they are cash back or a gift card to a home improvement store.

0% introductory financing 

Yet another popular credit card feature is introductory 0% financing that lasts anywhere from six months to 21 months. When you choose a 0% introductory rate credit card, you’re essentially getting free financing on the costs of improvement.

“Introductory rates are popular among many card issuers and can be a helpful tool if you may be looking for low-cost financing,” says Fred. “But be sure to pay the credit card balance in full and budget accordingly to avoid the interest rate resetting after the introductory period ends.” 

Credit cards associated with specific retailers or stores, particularly home improvement stores, are known for offering deferred interest programs to help entice homeowners to pursue their renovation goals. But here, too, the key is paying attention to the program details in order to make the offer work for you.

“These offers allow more of the payment to go toward the principal, and you can pay off the debt sooner. But know the duration of the offer period and calculate the monthly payments needed to pay off the balance in full before the offer expires,” says LaDonna Cook of the nonprofit debt counseling company GreenPath Financial Wellness.

Convenient when shopping

Yet another upside when using credit cards to pay for home improvements is the ease of use. This is especially true if you’ll be relying on several different merchants to finish your project. Using credit to pay various vendors is far easier than using individual loans for each purchase or service, for instance. 

“Using a credit card is certainly one of the most convenient and secure forms of payment,” says Fred. “It can be more convenient to swipe your card versus applying for a loan that then needs to hit your bank account, which you then need to withdraw or write a check for. Using a credit card could also have a smaller impact on your credit score in comparison to taking out a loan.”  

Warranty protection 

It’s common practice among credit card issuers these days to offer extended warranties on items purchased with the card. If your renovations include purchasing large appliances or other expensive items, this can be a particularly valuable feature.

“This is certainly a central consideration when using a card, particularly if you believe the merchandise may not last longer than the length of the warranty or if you would prefer not to budget in a replacement or extended warranty,” says Fred. 

Drawbacks of using a credit card 

While there are indeed some benefits to using a credit card to fund home improvements, there are a few best practices that are critical to follow to make this approach pay off and not cause you financial heartache.

Potential to overspend

With inflation, the cost of everything has been rising, including home improvements. It can be easy and tempting to overspend, ultimately getting in over your head with debt on your home project.

“Practice spending restraint, stick with your spending plan, and try not to overspend to earn rewards,” says Cook. “Where possible, plan ahead and save for home improvements so that you don’t need to fully rely on credit to finance them.” 

In fact, you should avoid using a credit card altogether if you are unsure of your ability to make payments on time or you have a tendency to spend beyond your means when using a card. Establishing and sticking closely to a home renovation budget is another important best practice. 

You should also regularly review your credit card statements to ensure you are staying within the budget you established at the outset of your project.

“Remember that rewards are a helpful tool when renovating, especially when many costs have risen in recent years, but first consider your budget and stick to it,” says Fred.  

Failing to repay debt before introductory rate expires

Credit card introductory rates eventually end. So you’ll need to be disciplined about keeping your eye on the promotional timeline and repaying the debt on time.

“If you are not able to pay off the balance before the offer period expires, it’s important to calculate and budget for payments at the higher interest rate that takes effect once the offer period ends,” says Cook. 

There may be cheaper options

It’s worth noting that some vendors or merchants provide discounts to customers who pay in cash and will tack on an additional convenience fee when you pay with a credit card. This may make credit cards a more expensive proposition in some cases.

If you have a great deal of equity in your home, it may be less expensive over the long term to use a home equity loan or home equity line of credit (HELOC), particularly as interest rates on many credit cards soar amid the current high-interest environment. But HELOCs come with risks of their own.

“Consumers should keep in mind that interest rates vary over the life of the (HELOC) credit line and are determined by market rates,” says Fred. Additionally, remember that your house is being used as collateral in this loan scenario, so speak with a financial professional regardless of your home renovation size to ensure your financing method best matches the scale and needs of your renovation project.” 

Deciding if using a credit card is right for you

Using a credit card to finance home improvements is certainly not the right move for everyone. There are some specific circumstances and conditions under which this can be a useful approach. Using a credit card makes sense if:

• You’re making large purchases that may qualify for a welcome bonus:  It makes the most sense to use a credit card to fund a home renovation when you may have a large upfront purchase to make that can earn a welcome bonus. Although as mentioned, remember to make note of when the introductory offer may end and budget for the total statement. 
• If you can get a 0% intro rate: If your credit score and payment history allows you to qualify for a 0% credit card offer, then this approach may be a good way to finance your home improvements for no cost.

• You’re disciplined about spending: It’s important to consider your unique personal financial habits and whether you’re disciplined about credit card usage as well as following a budget. If the answer is yes, then using a credit card may be a safe and valuable approach to paying for home renovations. 

Using a credit card to finance renovations may not make sense if:

• You already have a high debt-to-income ratio: If you already have a high debt-to-income ratio, using a credit card may not be the best choice. It may negatively affect your credit score, and you may not qualify for the most favorable interest rates or credit card programs.
• You have a low credit score already: Similar to having a high debt-to-income ratio, if your credit score is subprime, you may not qualify for a competitive credit card offer or even a credit limit that’s high enough to cover the full cost of your project. That may force you to use other forms of financing in addition to a credit card, in order to pay for the total cost of renovations. In this scenario, it may be best to skip the credit card altogether.

The takeaway 

There are a variety of benefits to using credit cards to pay for home improvements, including earning valuable welcome bonuses or program rewards and obtaining 0% financing on your renovation project. But before deciding to use a credit card to cover such costs, be sure you fully understand the program rules if you hope to qualify for rewards. 

And if you’re not a disciplined budgeter and spender, it’s probably best to consider other options to pay for your home renovation goals. In such cases, a home equity loan or even a personal loan can be a useful option.