Are Credit Cards a Good Way to Finance Home Improvements?

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Maybe you’re tired of staring at your outdated kitchen day in, day out. Or maybe you’re desperate for a playroom now that your kids are getting older, and so you’re ready to finish your basement.

There are plenty of benefits to improving your home. First, there’s your personal enjoyment to consider. And then there’s resale value to think about. Even if you don’t get your full investment back when you sell your home, you’ll likely add to its value by renovating.

But many people can’t afford to pay for a renovation outright — especially a big one that costs many thousands of dollars. If that’s the boat you’re in, you may be thinking about charging your upcoming project on a credit card. But before you do, consider your other choices.

The downside of using a credit card for renovations

If you have a credit card with a generous spending limit attached to it, you may be tempted to use it for home improvements. But be careful. Using a credit card for renovations could mean signing up to spend a lot of money on interest.

Now one exception may be if you’re expecting a windfall and you also qualify for a credit card with a 0% introductory APR. Let’s say you’re undertaking a $10,000 renovation this summer, and you qualify for a 0% interest rate offer for 12 months. Let’s also assume you commonly get a year-end bonus at work that’s enough to pay off that sort of balance.

In that case, using a credit card could make sense. But for the most part, there are less expensive ways to finance home improvements.

Options worth considering

These days, many homeowners have a lot of equity in their properties. That’s because home values have risen substantially on a national level.

If you have equity to tap, you might consider borrowing via a home equity loan rather than using a credit card. Chances are, you’ll snag a much lower interest rate on the sum you borrow.

Now sometimes, a home equity line of credit, or HELOC, can make sense for renovations. Right now, though, that’s not the case.

Consumer interest rates are expected to keep rising this year, and with a HELOC, the interest rate on the sum you borrow can change. When you take out a home equity loan, you get a fixed interest rate on the amount you borrow, which means you won’t have to worry about your loan becoming more expensive to pay off over time.

There’s also a personal loan to consider for renovation purposes. A personal loan might come with a higher interest rate than a home equity loan, but that way, you’re not borrowing against your home. Some people don’t like the idea of tapping home equity, and if you have a great credit score, a personal loan could end up being an affordable means of borrowing.

Plus, while many homeowners have equity in their properties now, not everyone does. So if you’re in that boat, a personal loan could be a good bet.

Assess your choices

A credit card might seem like a solid choice for financing home improvements. But in many cases, that will mean paying more interest than necessary.

Remember, too, that using a lot of your available revolving credit could result in a hit to your credit score — even if you’re able to make your credit card payments on time. And that’s just one more reason to go a different route when financing renovations.

Check out The Ascent’s best credit cards for 2022

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