If you’re considering using a credit card for your next home improvement project, you aren’t alone:
While most homeowners (roughly 80%) pay for their projects with cash, the majority of those who do choose financing use home improvement credit cards over other types of financing.
Home improvement credit card use is on the rise—40%+ of those financing their projects will use a credit card this year, up from 38% in 2019.
Before using a credit card for your project, you need to ask two questions:
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How do credit cards for home improvement work?
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Should I use a credit card or another financing option?
This guide will help you answer these questions.
Let’s get started.
What is a home improvement credit card?
When you apply for a home improvement credit card, you are essentially borrowing money from the company issuing the card. This is usually a bank or other financial institution, and the cards these companies issue are considered “major” credit cards because they can be used anywhere credit cards are accepted.
However, many stores that specialize in home and building supplies issue their own home improvement credit cards. The main difference between a major credit card and a private label or “store” card is that store cards can generally only be used on purchases made at that particular chain of stores.
How do home improvement credit cards work?
The application process is fairly simple; you generally apply online or occasionally in person at the store. The issuing company pulls your credit report and if your score and income qualifies, you’ll be issued a card. Your credit limit is usually based on a combination of factors, with household income and credit score given the most weight.
It’s generally not a good idea to apply for multiple credit cards because it can negatively affect your credit score. The credit reporting bureaus record each time a lender requests your credit history; too many inquiries are a red flag that you may be overextending yourself.
Once you receive your credit card, you can immediately begin using it to purchase supplies, pay contractors, or cover other expenses associated with your home improvement project.
Each month, you’ll get a statement from the issuer detailing your purchases for the month, your outstanding balance, and the minimum payment due. If you pay your balance in full each month, you usually avoid paying interest.
Most home improvement credit cards offer 0% interest during the introductory period, which is usually between 6 and 18 months. If you pay off your balance before the introductory period expires, you can finance your project without paying any interest.
After the introductory period, your interest rates go up, usually to between 15% and 24% APR, depending on the card issuer and your credit score. Home improvement credit cards generally have the highest APR of all home improvement financing options.
If you have below average credit, you may be able to get a home improvement credit card without a 0% introductory rate, but these should only be used if you have an urgent repair project and you can’t take time to save up cash to cover it.
In some cases, you may be eligible to earn rewards points or cash back bonuses on purchases made with your home improvement credit card.
What do I need to qualify for a home improvement credit card?
In most cases, you must be 21 to apply for a credit card. Credit card issuers usually consider these three factors in determining whether or not to approve your application:
Your income. A high credit score won’t matter much if you don’t have adequate income to repay your debt. Most applications ask for your “household” income, which isn’t necessarily the same as your annual salary. You can include your wages, your spouse’s wages, alimony or child support, and income from investments. You have a better chance of qualifying if you have a low debt-to-income ratio.
Your credit history. Your credit history is a summary of your borrowing and repayment activity on existing and past consumer loans. It helps determine your credit score, which is used to help lenders qualify you for different credit card offers. If you’ve had a derogatory event such as a late payment or collection account within the past six months, it can be very difficult to qualify for a home improvement credit card.
Your existing debts. Credit card issuers will consider how much you owe other lenders to determine whether to approve you for a card and what your credit line will be. A good rule of thumb to keep in mind is that your minimum monthly payment is roughly 3% of your balance. For example, the minimum payment on a $3,000 balance will be approximately $90. The issuer will make sure you have enough income left over after your mortgage or rent and other monthly payments to comfortably manage your minimum monthly payment.
In general, you need good to excellent credit (a credit score of at least 680 or higher) to qualify for most home improvement credit cards, although some lenders have programs for those with fair credit (scores of between 600 and 680).
When should I use a home improvement credit card?
If you ask most personal finance experts, they would recommend that you only use credit cards when you can pay your balance in full each month—or pay the balance off during the 0% introductory rate.
This is because interest charges and other fees can quickly add up on these higher-interest cards. Take a look at the following example based on a $3,500 balance on a home improvement credit card with a 19% APR:
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Minimum monthly payment—$110
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Time to pay off balance based on minimum payment—45 months
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Total finance charges—$1,410
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Total amount paid—$4,960
You may also be charged other fees when you use your card, such as transaction fees if you use your card to obtain cash, late payment fees, and over-the-limit charges, which can be as high as $35 per occurrence.
Note, also, that if you make a late payment, your credit card company may raise your interest rate as high as 29.99% on the balance.
Some contractors apply a 3% to 5% surcharge to credit card payments to offset their costs for accepting credit cards. Be sure to ask before you use plastic to pay for professional services.
It’s generally best to reserve a home improvement credit card for those times when you need a smaller amount of money for your project and you can pay it back relatively quickly, before the introductory rate expires.
Home improvement credit cards can be a great choice for DIY projects and repairs, and for purchasing the supplies your contractor needs to do the work on a particular project.
They’re also a preferred option when you need funds right away for an urgent project or repair, since the approval process is streamlined and you get your card in just a few days. You may also want to consider a personal home improvement loan, which also has a quick application, approval, and funding process, and may have more competitive interest rates.
Glossary of home improvement credit card terms
When you apply for a home improvement credit card or compare offers from various lenders, you may see several unfamiliar words. Here’s a list of the most common credit card terms and what they mean:
Annual fee
Many credit card issuers charge a fee each year to manage your account, whether you carry a balance or not. Often, the annual fee is waived for the first year, but most cards will charge you this fee, especially those that offer a rewards program. The only way to avoid this fee is to close your account once the balance is paid in full.
APR (Annual percentage rate)
This is the interest rate that determines the finance charge the lender adds to your balance each month it isn’t paid in full. The APR is usually determined in part by your creditworthiness; you may have a higher or lower rate than the national average, which is currently around 16%
Balance transfer
This is simply moving the balance on one credit card to another, new card, usually with a lower interest rate. Many people use this option when they open a card with a 0% introductory rate so they can pay down their existing balance on the first card and avoid high finance charges on the old balance and any new purchases they make and pay in full during the introductory term.
Credit limit
This is the maximum amount you can spend with your card. You may be charged a fee if you go over the limit, even if the overage is caused by finance charges added by your credit card issuer.
Keep in mind, you can negatively affect your credit score if you consistently keep your balance close to your credit limit.
Due date
This is the date your payment must be applied to your account each month. If the payment doesn’t make it onto your account by this date, you may be charged a late fee—and your lender may raise your interest rate. Web payments are usually the quickest way to get your payment applied to your account.
Finance charges
This is the extra amount you pay your credit card issuer in addition to the money you borrow. Your finance charges are usually determined by your balance, the number of days in the billing cycle, and your APR, and may include other fees.
Grace period
This is the period of time in which no finance charges are added to new purchases on your home improvement credit card. Cash advances don’t have a grace period. You will typically get a grace period of between 21 and 25 days in the billing cycle when you can pay your balance in full and avoid finance charges.
Introductory rate
This is the APR you are charged during the first months or years after opening a new home improvement credit card. Many companies offer a 0% introductory rate for a short period of time (generally 6 to 18 months).
Minimum payment
This is the amount you have to pay each month to avoid defaulting on your account. You can always pay more than the minimum, but you cannot pay less without incurring penalties and negatively affecting your credit score.
Transaction fees
Your issuer will spell out any additional fees that may be assessed in addition to interest charges. These usually include cash advance fees, ATM fees, late charges, and over-the-credit-limit fees.
How do I find a good home improvement credit card?
Choosing a credit card today can lead to “paralysis by over-analysis” for many homeowners—there are so many to choose from, it’s hard to know which one is right for you.
Here are some things to consider before you apply for a card:
Store card or major credit card
In most cases, a major credit card is a better choice, especially if you are using a contractor for part of the project, or the project involves lots of different components. Most store cards can only be used at that particular chain, which limits what you can buy with them.
However, if you are doing a DIY project such as upgrading bathroom fixtures or adding a stone paver walkway to your patio, a store card may be a good option. Many home improvement chains offer special perks for their credit card holders, such as a price discount, and some even offer 0% introductory rates.
Carefully consider what you expect to purchase with your card, and compare terms before you decide whether to apply for a major home improvement credit card or a store one.
Introductory term and APR
It’s always best to pay off your balance during the 0% introductory term, so if you’re charging a more expensive project, you’ll want the longest possible introductory rate.
Sometimes, however, you may not be able to pay off your balance during the introductory term, and that’s when APR comes into play. Introductory term and APR are usually a tradeoff, in that cards with longer introductory terms have higher regular APRs, while shorter terms have somewhat lower APRs.
When you’re ready to apply
Hearth offers you a convenient way to compare home improvement credit card options. Click this link to explore your options and compare offers from multiple companies.
11 tips for using your home improvement credit card wisely
Once you’ve compared your home improvement financing options and decided on a home improvement credit card, these tips will help you get maximum value from your new card.
1. Determine how much you can realistically afford to pay every month toward your credit card balance. Multiply that amount by the number of months in your 0% introductory term. This figure should be the maximum amount you spend on your home improvement or repair project.
2. Develop a detailed budget for your project and make sure it’s below the number you calculated above. If it’s not, look for ways to scale back. You may be able to use less expensive materials or do some of the work yourself to save money if you’re using a contractor.
3. If you’re using a contractor to do some or all of the work, get competing bids from at least two or three to be sure you’re getting the best price. Be sure to ask about any additional fees, including credit card fees, that may affect the final price.
4. Commit to your budget and resist the temptation for “mission creep” even if you have extra money available with your credit limit. A little overspending upfront can lead to huge costs later, especially if means you can’t pay off your balance before your introductory rate expires.
5. Only use your card for your planned home improvement or repair project and carefully track each purchase to make sure you’re staying within the project’s overall budget.
6. Pay your budgeted monthly payment every month regardless of the minimum payment due. If you don’t, it can be impossible to catch up later and you’ll pay high interest rates on any balance that carries over past the introductory term.
7. Don’t use your home improvement credit card for cash advances; you’ll pay extra fees for this convenience. Draw from your savings if you need cash for your project.
8. Make extra payments when you get “new money,” such as a bonus at work, your tax refund, or overtime pay. This extra payment is a safety net in case an unexpected expense disrupts your household budget or adds to the cost of your home improvement project.
9. Use any cash-back bonuses or rewards points from your credit card to purchase materials for your home improvement project to help lower overall project costs.
10. If you keep your account open to use for additional purchases after your initial project is completely paid off, charge only what you can pay in full each month to avoid finance charges. And if you must carry a balance on your account, try to keep it at or below 30% of your credit limit to avoid negatively affecting your credit score.
11. If you’re nearing the end of your introductory rate and you find yourself with a substantial balance despite your best efforts to stick to a budget, consider applying for another credit card with a 0% introductory rate and balance transfer option if your credit is good. Keep in mind, however, that you will pay a balance transfer fee, usually around 3%, on any amount you transfer. Calculate how much you would pay in finance charges if you paid off the balance on the existing card in the same amount of time as the introductory term on the new card. If it’s more than the balance transfer fee, a new credit card may make sense—as long as you close the original card once the transfer is complete.
Conclusion
Home improvement credit cards can be a convenient and flexible option for your renovation and repair projects. If you use them wisely and take advantage of the 0% introductory rate, you can avoid finance charges on the money you borrow. For those times when you need a small amount of money you can pay back quickly, it’s tough to beat a home improvement credit card.
Of course, it never hurts to consider other financing options, such as a personal home improvement loan, and compare them to see which works best with your budget and financing needs. The best option is always the one that helps you budget responsibly for your home improvement needs.
