How To Finance Home Improvement Projects With Credit Cards – Forbes Advisor

Whether you’re trying to increase your property value, make repairs or simply want a change, altering your home is often expensive and ambitious. Financing the little things your home needs to become the house of your dreams may seem impossible when you’re already paying a mortgage, HOA fees and more. With rewards programs, bonus offers and opportunities for 0% introductory Annual Percentage Rate (APR) periods, utilizing credit cards can—when managed correctly—help make your house the home you want.

Reasons To Use Credit Cards For Home Improvement

While there’s no lack of ideas for home improvements, there’s also no shortage of risk when financing with a credit card. Like a buzz saw might remove a finger, credit card debt can come for its pound of flesh, too. Improper usage can have socioeconomic consequences for you and your family that extend far beyond the duration of any home remodel. But with great risk comes great opportunity, and when the risk is properly mitigated, you can save money and earn rewards by financing your DIY projects with credit cards.

Take Advantage of Credit Card Welcome Bonuses

Welcome bonuses offer new credit cardholders an opportunity to earn rewards—usually for meeting a minimum spending requirement by using the card in the first few weeks or months of account ownership. The best welcome bonuses can provide rewards worth up to 15% or 20% of the value of the spending required to earn them—meaning you can buy materials to build a deck for $2,000 and earn $300 in cash back.

Before you jump at this opportunity to save (or to expand the size of your deck by 15%) ensure the reward redemption options support your preferred method. Some cards earn points and miles instead of cash back and only offer redemptions in the form of hotel nights or flights. Other cards may reward cash back but only as a statement credit against future balances. Both can be good options, but make sure that you know which kind of rewards you’re accumulating ahead of time.

Rewards

Credit card bonus rewards are generally sorted by merchant category. Some cards offer rewards for shopping at home improvement stores—or even with a specific brand. Co-branded cards from Lowes, Home Depot, IKEA and more may be used to earn rewards in-store at a higher rate than many other cards and can be utilized to earn extra rewards on your tools, furniture and supplies.

Low Introductory APRs

Low or 0% introductory APR periods can offer consumers an opportunity to buy now and pay later—without interest. Be careful, though: These opportunities can wind up hurting when the other shoe drops—when the period ends, a standard APR will apply to any purchases made during the low introductory APR purchase period and your balance will accrue interest (often at a high rate) until you pay it off in full.

Convenience

Credit cards are convenient. You can make large purchases without having to withdraw and carry around large amounts of cash or write checks and you don’t have to take out a loan every time you need to borrow money for a short period of time. With credit cards you can easily transact in-store and online and receive fraud protections—legally, consumers are only responsible for up to $50 of a fraudulent purchase when a card is stolen and many cards offer a $0 fraud liability benefit where this $50 liability is reduced to nothing.

Many cards also permit cardholders to track and sort purchases online or in mobile banking apps—this makes it convenient to keep track of your budget and expenses in one place without doing much work sorting (and un-crumpling) receipts.

Used Correctly, Credit Cards Are Low Risk

If you make a budget and follow it, avoid overspending, pay your balance on time (ideally in full) and generally practice good money-managing habits, credit cards can carry much lower risk.

How To Finance Projects Using Credit Cards

Financing a home improvement project often comes with a hefty price tag—not to mention the time and labor involved. Finding a credit card to lift heavy with you can be a major financial support to your project. Here are some tips for finding the perfect credit card to meet your needs.

Store-Issued Credit Cards

Many big-name home improvement stores, like The Home Depot, Lowe’s and IKEA, all offer credit cards. These cards typically feature excellent rewards on purchases made in-store and can be helpful to homeowners who shop mostly in one place. They’re worth considering if you have a strong sense of brand loyalty or if you live in an area where access to a certain store is most convenient. Most do not require perfect credit scores to qualify and offer additional perks, discounts and don’t charge annual fees.

That being said, store cards also come with drawbacks. Store-issued credit cards do not always earn rewards when used outside of the store and set terms and conditions which may differ from standard practices for regular credit cards. Many store cards feature quicker expiration dates on earned rewards and higher interest rates. To make a store card particularly worthwhile, you typically have to spend quite a lot of money in the store in question. If none of this poses any problem for you, a store-issued credit card may be one of the best routes to take for your home-improvement needs.

Home Depot Credit Card (Consumer)

With no annual fee, the The Home Depot Consumer Credit Card* offers discounts, financing plans and exclusive in-store offers including a longer return period for purchases. The card does not feature an ongoing rewards program and demands a high interest rate of 17.99%, 21.99%, 25.99% or 26.99% variable APR on purchases, based on creditworthiness if you carry a balance. The Home Depot also offers credit cards for commercial operations or financing large projects with its Project Loan card.

Lowe’s Advantage Credit Card

The Lowe’s® Advantage Card* earns 5% off every eligible purchase or order. It charges no annual fees and offers a welcome bonus: 20% off the first purchase, up to $100, made on the day of account opening. Offer valid until January 31, 2024. Though the high interest rate is a major drawback, special financing options on purchases of $299 or more offer six months of deferred interest financing and the card also offers additional, reduced-APR options for financing over longer periods of time for even larger purchases.

IKEA Visa Credit Card

If you plan to do all your furniture shopping at IKEA, the IKEA® Visa® credit card* may be a solid option for rewards. Cardholders earn 5% back in rewards on IKEA purchases, including Traemand installation and TaskRabbit assembly services, 3% back in rewards on dining, grocery stores and utility purchases and 1% back in rewards on all other purchases made with your IKEA Visa credit card. Unlike the closed-loop store cards The Home Depot and Lowe’s offer, the IKEA Visa may be used anywhere Visa is accepted. No annual fee or cap on rewards is attractive, but rewards may only be used at IKEA and are issued in reward certificates of $15 each with no partial certificate use allowed. The high APR and the rapid expiration on earned rewards can make it difficult to utilize. On the other hand, the IKEA Projekt card is a closed-loop store card only available for use financing larger IKEA purchases.

Take Advantage of Rewards Programs

Many credit cards come with a rewards program of some kind but a few are particularly lucrative. These programs are the main way you can earn cash back or other types of rewards on home improvement-related purchases. When maximized to full potential, rewards are a powerful way to benefit from and take advantage of your credit card.

Our list of the best credit cards for home improvement includes cards with features we believe those trying to DIY a home-improvement project with help from a credit card may benefit from. From cash-back opportunities to flexible-redemption values, these cards will help you finance any project, big or small. Though unfortunately most cards do not offer specific bonus category rewards for home improvement-related purchases, they make up for it in other ways.

If you prefer to look for a credit card yourself, look for offers like a 0% introductory APR period, welcome bonus and a rewards program that offers points or cash back on home improvement or “all other” purchases (if home improvement is not listed). Be sure to read the fine print, and don’t be afraid to inquire with a credit card provider directly if you have any specific questions.

Look For 0% Introductory APR

Most credit cards have high interest rates, but some offer a promotional 0% APR period. The Annual Percentage Rate (APR) is the official interest rate applied to any credit amount that you borrow. It represents a yearly rate but is calculated daily and also includes any additional charges and fees that may come with the card. In most cases, credit card providers will only offer this promotion to individuals with good or excellent credit history.

If a credit card offers a 0% introductory APR period, it means for a specific amount of time after first acquiring your card (typically somewhere between six and 18 months), you will not accrue any interest on your balance. Once the promotional period has ended, your APR will return to whatever the normal rate is for the card.

This means, for example, that you can go from earning 0% interest to 18% or more on your account balance literally overnight. Make sure to understand this interest rate beforehand so that you aren’t unpleasantly surprised when your promotion ends. We always recommend paying off a balance in full before the end of an introductory APR period.

Introductory APR periods are ideal if you have a home improvement project that will be completed within the eligibility period because it means you can finance your renovation without worrying about spending extra money on interest—so long as your project doesn’t run your credit utilization up too high, which may damage your credit.

None of this means you can miss any of your credit card payments. You will still need to make all your minimum payments or risk damaging your credit score.

Earn a Welcome Bonus

A welcome bonus is exactly what it sounds like: an incentive or offer given to you when you sign up for and begin using a new credit card. Additional cash back or reward points for spending a certain amount in the first few months or weeks of account ownership is typical of a welcome bonus. Welcome bonuses are also not granted to all credit card applicants-each bank has rules to restrict who qualifies for a specific bonus.

If you do qualify, a welcome bonus is a great way to get some extra funding for your home improvement projects or earn extra reward points. Never spend money you wouldn’t already spend to earn a welcome bonus, but if you’re planning to spend hundreds or thousands of dollars anyway on a home improvement project, it can present an excellent opportunity to meet the minimum-spend requirements on a credit card.

Things To Avoid

Plenty of risks come with using a credit card to finance your home improvement projects. While these pitfalls are usually easy to avoid if you use your card responsibly, budget realistically and stick to a plan or schedule, even the most conscientious cardholder can fall into a debt trap if not careful. Here are some of the most common problems so you can anticipate well in advance:

Overspending

Home improvement projects—especially remodels—are almost never cheap. One expensive and unplanned purchase or service—whether an emergency electrical fix, unexpected appliance or necessary roof repair—can pitch your credit card balance into the red. It’s important to have an emergency fund built into your budget to help counter any extra costs.

Similarly, avoid impulse buying and know when to walk away from a purchase. If you’ve already budgeted for a composite-wood desk for your home office, for example, avoid buying the expensive luxury hardwood model you saw at the furniture store—even if you can “afford” it on your credit card’s high credit limit.

Missing or Unpaid Credit Card Bills

You should always make sure you can pay off your credit card balance in full every billing cycle. Unpaid bills will accumulate interest, put you in more debt and negatively impact your credit score. If you miss payments, your account may go into arrears or default. Your provider may also hire a debt-collection agency to recover the owed money. Making sure you always have enough money on hand to make the minimum payments on your account is one of the most important habits a responsible credit cardholder should develop. Your payment history accounts for 35% of your credit score, so missed payments will negatively impact your credit score, too.

Variable Interest Rates

Different credit cards have different interest rates. Though you should try to avoid carrying balances at all, know the ins-and-outs of your particular card—especially if the interest rates are variable to change over time. Cards with fixed- or conditional- interest periods are guaranteed to change once the specified period has ended. Do your research to know what you’re signing up for—a card with a 12-month, 0% introductory APR might be game-changing in the short-term but don’t be surprised by the normal 18% interest rate once the year-long period is up.

Credit Card and Rewards Program Limits

Like interest rates, it’s important to know the exact limit on your credit card and prepare never to meet it. Overutilizing your available credit can be a major detriment to your credit. You should attempt to keep your credit utilization ratio—the amount of credit you use overall versus the amount of credit you have available overall—below 30% whenever possible. Between 1% and 10% is even better for your credit.

Reward programs also often feature limits or caps. Some cards will only offer rewards on purchases up to a certain dollar amount, while others have strict guidelines on what constitutes an eligible purchase. You don’t want to spend $20,000 on your renovations only to discover that just $5,000 of that qualified for points or, even worse, none of it was eligible at all.

Depending on the type of home improvement project you’re undertaking, look for higher limits (being a homeowner isn’t getting cheaper) and a home improvement or everything else category in the rewards program.

Debt

All of the risks mentioned above contribute to the biggest risk of any borrowing, no matter what you’re using it for: falling into a vicious cycle of debt. By using a credit card to spend more than you earn, you end up having to borrow more in order to make both payments and everyday purchases. Your debt will accrue interest, increasing your debt further and sinking you deeper into the cycle.

This is a cycle to especially avoid when it comes to home improvement, where you are usually financing expensive projects with long-term repercussions on everything from property value to credit score.

Bottom Line

A credit card can be a great way to finance your home improvement projects. As long as you can pay off the card in full every billing cycle and avoid going into debt, credit cards can help you save money on otherwise expensive renovations.

Plenty of credit card options, both store and bank-issued, offer home improvement rewards programs, 0% introductory APR periods or lucrative welcome bonuses to help you get the most out of your home improvement spending. If you do your research before committing to a card and use the card responsibly, you’ll be able to sit back and enjoy your new home remodel without any extra stress.