A recent survey of 1,000 U.S. adults ages 33 to 40 showed that roughly 20% used a credit card to help with the purchase and closing costs of buying a home, including the down payment.
If you are thinking about making a big payment, like paying costs associated with closing a mortgage or maybe a car down payment, with a credit card, first think about how it might affect your credit score.
When you use your credit card to pay for anything, you are adding to your credit utilization rate. The general rule of thumb is to not use more than 30% of your credit limit. This translates into a better credit utilization rate, which is a measure of how responsible you are in using credit cards. So, consider that putting a big down payment for something like a car or closing costs on a home can easily make your utilization rate jump.
If you don’t pay that purchase off immediately, this higher utilization rate can negatively impact your credit scores. A lower credit score can mean you might end up being charged more for other purchases that you need to make.
Of course, any payment activity — whether it’s on your credit card or loan — gets factored into your overall credit history. If you’re late on payments, or worse you miss them entirely, your credit score can be negatively affected.
The other side of the coin is that if you are using a rewards card, charging a big expense, like the down payment on a car, can help you easily meet that spending threshold to earn the rewards.
Remember, though, that if you aren’t paying the balance off right away the value of the rewards may not offset the additional interest charges you can face if you carry a balance month to month.