Paying bills with your credit card to earn rewards or to better manage your finances makes sense as long as you follow one simple rule: Always pay your balance in full each month. If you’re paying bills with your credit card because you can’t afford to pay them with money from your checking account, that’s a sign of a bigger financial problem that can get worse if you let it become a habit.
Before you switch to paying your bills with a credit card, pay off your existing balance on that card. That way, you start with a zero balance, and you can take advantage of the credit card's grace period to avoid paying interest. Otherwise, if you use a credit card that has a balance, finance charges will be added to your balance each month, making it more expensive to pay your bills via credit card.
Using One Card
It’s easier to make sure all of your credit-card-payable bills are getting paid if you use just one credit card for all of them. Choose the credit card with the best opportunity for earning rewards AND the highest credit limit. The more credit cards you use for paying bills, the harder it becomes to track and manage the charges on all your credit cards. It’s not impossible, but you have to be more diligent about keeping up with your current balances and making sure you’re not spending more than you can afford.
It's important to make sure there’s enough credit available on your bill-paying credit card to cover all the new transactions. Credit card issuers cannot charge penalty fees for exceeding your credit limit if you have not authorized them to allow charges that go over it. However, they may still penalize you in other ways, such as lowering your credit limit or raising your interest rate. If you want to, you can free up additional credit throughout the month by making periodic payments on your bill-paying credit card.
Watching Your Checking Account
Just because you’re paying bills with your credit card now doesn’t mean you can splurge with the money in your checking account. Remember that you have to keep this money available so you can pay your credit card balance in full when the due date rolls around. That way, you’ll avoid debt and credit card interest.
Keep an eye on your credit card and checking account balances throughout the month so you'll be certain you'll be able to pay off the card when the time comes.
Avoiding Convenience Fees
Some companies, especially utilities, charge a so-called convenience fee for when you pay your bill with a credit card. Depending on the amount of the fee, you may want to forgo paying that bill with a credit card and use your checking account instead. These fees can add up and make your rewards-points-generating strategy less worthwhile.
When a Credit Card Isn't an Option
You probably won't be able to pay some bills with your credit card. For instance, some property managers won't let you pay your rent with a credit card. Larger property management companies are more likely to accept credit cards than a landlord who owns only one or a handful of properties, but they may charge a convenience fee.
You can typically pay your cell phone and cable/internet bills with your credit card. And some utilities will let you do it without charging a convenience fee.
Companies that let you pay your bill by credit card typically enable you to make a payment either online or over the phone. You'll have to give your credit card number, expiration date, and at least your billing zip code. Some companies may ask for your complete billing address, and most will need the security code on the back of your credit card (or the front of your American Express).
Don’t be tempted to use a credit card convenience check to pay bills you're unable to put on your card. Convenience checks are treated as cash advance transactions, and your credit card issuer probably doesn’t pay rewards on cash advances. What's more, you’ll pay a cash advance fee on the transaction, and you’ll incur interest starting from the day the check is cashed.
Effect on Your Credit Score
Paying bills with your credit card can either help or hurt your credit score, depending on how you use your card. Maxing out your credit card and missing credit card payments can hurt your credit score. Paying your bill on time each month helps your credit score.