Home improvement credit cards are becoming a popular financing option for homeowners, especially those considering roofing projects. Learn everything you need to know about using home improvement credit cards.
What is a home improvement credit card?
Home improvement credit cards allow you to borrow money from the company issuing the card.
Typically, they fall into two categories: major credit cards and store cards.
A major credit card is issued by a banking institution and is considered a “major” credit card because it can be accepted nearly everywhere.
A store card is from a store specializing in home improvement or building supplies. Unlike a "major" credit card, a private label card from a store can only be used on purchases made at that chain of stores.
What’s the application process?
Applying for a home improvement credit card is an easy process. Done online or in a store, if your credit score and income qualify for the designated plan, you’ll be issued a card. The credit limit given to you is often assigned due to your household income and overall credit score.
After you receive the card, it can immediately be used to purchase roofing supplies, pay contractors, or cover any other expenses for the roofing project.
The monthly statement details what you’ve purchased, the outstanding balance, and the minimum payment due.
Pro Tip: If you pay the balance in full each month, you most likely won’t pay any interest.
Introductory periods of home improvement credit cards usually last between 6 - 18 months. During this time, most lenders do not charge any interest. If you manage to pay off the entire balance before the introductory period ends, you can finance the project without paying any interest.
After the introductory period, interest rates are applied, usually between 15% - 24% APR. If your credit score is less than great, you still may be able to get a home improvement credit card without the 0% introductory rate. However, these should only be used in dire repair circumstances when you don’t have the time to save up for the repair.
How do I qualify for a home improvement credit card?
Lenders and stores who issue credit cards consider three major factors when determining whether or not to approve an application: income, credit history, and existing debts.
Nearly all applications ask for a household income. This can include combined wages, alimony or child support, and income from investments. You have a solid chance of being approved if you have a low debt-to-income ratio. Keep in mind that a high credit score won’t have much pull if you don’t have enough income to repay the balance.
A credit history is a combination of someone’s borrowing and repayment activity on current and past consumer loans. This greatly determines your credit score, which is in turn used by lenders to qualify individuals for certain credit card options. It can be very difficult to get a home improvement credit card if you’ve had a number of late payments with another collection agency in the last six months.
Banks and other lenders will weigh how much you currently owe to other institutions to determine whether you qualify and for what type of plan. A good example to remember is a minimum monthly payment is around 3% of the total balance. So if the total is $4,000, the minimum monthly payment would be $120. Lenders want to ensure you have enough leftover income after major expenses to cover the monthly payment.
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When is it appropriate to use a home improvement credit card?
In almost all cases, a home improvement credit card should only be used when you can afford to pay off the balance in full each month or pay off the entire balance during the introductory period.
Interest rates and other charges can add up quickly, putting homeowners in over their heads. To illustrate this point a bit more clearly, let’s examine a basic example of a $3,500 balance on a home improvement credit card with a 19% APR.
- Minimum monthly payments: $110
- Time to pay off balance based on minimum payments: 45 months
- Total finance charges: $1,410
- Total amount paid: $4,960
Other fees may be applied to your card if you use it to get cash, don’t pay on time, or go over the limit. If you do make a late payment, the lender will more than likely raise your interest rate, sometimes as high as 29.99%.
Home improvement credit cards are best for projects under a few thousand dollars.
They should be paid back quickly before the grace period ends and the interest rate kicks into action. They’re also a solid option for homeowners who need money right away for a repair that can’t wait as the process is fast and the card arrives quickly.
Common home improvement credit card terms
While most people are familiar with applying for a credit card, there are some terms that are not quite familiar. Let’s define some of the common credit card terms...
APR (annual percentage rate)
APR is the rate of interest the lender adds to the balance each month if the monthly payment is not paid in full. APR is determined largely by the creditworthiness of the homeowner. Your individual rate may be higher or lower than the national average, which hovers around 16%.
Nearly all lenders charge an annual fee to manage the account, whether or not the balance carries over. Some choose to waive it for the first year, but the majority will charge the fee. To avoid the fee, close the account once the balance is paid in full.
A balance transfer involves moving the remaining balance on one credit card to another new card, which typically has a lower interest rate. A balance transfer is a popular option when someone opens a card with a 0% introductory rate allowing them to pay off the existing balance on the first card to avoid high finance charges on the old balance and any new purchases they make and pay in full during the introductory term.
The credit limit is the maximum amount you can spend on the credit card. Lenders charge a fee if you go over the limit, even if the amount over is caused by finance charges added by your credit card issuer. Homeowners can negatively affect their credit score if they consistently keep the balance close to or over the credit limit.
Finance charges include the extra amount you pay the credit card lender in addition to paying back the money you borrowed. These additional charges are determined by your remaining balance, how many days are in the billing cycle, and your APR.
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How do I choose a good home improvement credit card?
There are many different credit cards to choose from, and it can be difficult to wade through the countless options. Before you apply to any lender, consider the following:
Store cards vs. Major credit cards
Major credit cards have a number of advantages over store cards, notable if you use a contractor for part of the project, or if the roofing job has many different components. Major credit cards allow for more flexibility, while store cards can only be used in that particular location or chain. However, if the roofing project is more of a DIY job, a store card may be a solid choice.
Weigh introductory terms and APRs
Longer introductory terms work well for more expensive projects, so if it’s a major repair or replacement, look for a card with a long grace period. If you know you can’t pay off the project within the introductory rate, carefully evaluate the APR policies.
Introductory terms and APRs usually are trade-offs, in that a longer grace period will have higher APRs, while shorter terms have lower APR rates.
How to use your home improvement credit card wisely
Once you’ve outlined your project’s budget and have chosen an appropriate credit card, follow these tips to help you get the maximum value with your new line of credit.
1. Plan to pay off the entire balance within the introductory card. Interest payments quickly add up and dramatically increase the overall cost of the project. Calculate how much you can afford to pay every month for the credit balance. Multiply this amount by the number of months in the grace period. Use this figure as the maximum amount you spend on the roofing project.
2. Once you’ve found the total for the project as outlined above, make a detailed budget to make the plan work for you. If you can’t, scale the project back or save up before starting. Consider using less expensive materials or doing some of the work yourself to cut back on costs.
3. When hiring a contractor, get at least three quotes to evaluate the best overall price.
4. Resist the temptation to begin or complete other projects not directly associated with your outlined budget. Small overspending at the beginning of a project can lead to huge increases later on. Use the card for its intended purpose, otherwise leave it alone.
5. Pay the total of whatever you’ve bought every month rather than just the minimum payment. This way, you’ll avoid paying any interest fees, even once the introductory period ends.
6. Avoid using the credit card for cash advances. Withdrawing large amounts of cash will lead to extra fees. Draw cash from your savings if you can. Otherwise, wait until you can put up the cash yourself.
7. Make extra payments when you can. Use work bonuses, overtime pay, or tax refunds in case an emergency gets in the way of paying off the monthly amount.
8. Take advantage of cash-back rewards and refunds from the credit card to decrease the overall project costs.
Find the best choice that fits your budget
Home improvement credit cards can be a great option for roof repair projects. If used responsibly, they can benefit your credit score while allowing you quick access to much-needed funds.
It never hurts to evaluate other financing options, like personal home loans, to see what works best for you. The best choice is one that fits your budget responsibly and allows you to hire experienced roofing contractors.