When you pay an electricity bill with a credit card, your utility company could charge a small convenience fee. If you’re not able to pay off the credit card balance quickly, you’ll start to owe interest. And credit card interest can be expensive.
To avoid these charges, you can get in touch with your utility company when you’re not sure you’ll be able to make a payment. You might be able to set up a payment plan, get more time to make your payment or qualify for a discount on your bill.
“Awareness is a two-way street,” says Bruce McClary, senior vice president of membership and media relations at the National Foundation for Credit Counseling. “The utility company has no idea if you haven’t told them that you’re facing financial challenges. And if your bill hasn’t already gone past due, as far as they’re concerned, they think things are fine.”
But not all utilities work the same way. For example, if you consider your monthly cellphone payment a utility, then paying with an eligible card could be worth it to unlock cellphone protection.
[Read: Best Credit Cards.]
What Types of Utility Bills Can You Pay With Your Credit Card?
Utility providers often accept credit cards. You’ll have to check with your providers to confirm that they’ll accept your card, but you may pay a small fee for using this payment method.
The fee may be presented as a discount for using other payment methods. For example, Verizon provides a discount on eligible mobile phone and home internet plans if customers make automatic payments with a bank account or the Verizon Visa Card.
Make sure you understand the fine print from both your utility company and your credit card issuer before you decide to use your card to pay.
Should You Pay Utility Bills With Your Credit Card?
Pros
— Emergency convenience. If you’re panicking about missing a bill, especially if you’ve reached a point where you could lose service, your credit card can provide a quick solution. First, see if a payment plan or other relief is available.
— Cash-flow flexibility. If you’ll have the money to pay your bill before your credit card’s grace period ends, you could use your card to pay on time while avoiding costly credit card interest.
— Credit card perks. You could earn credit card rewards for paying your utility bill, but you’ll want to make sure the value of those points outweighs any fees. This approach also likely won’t make sense if you aren’t able to pay the card off during the grace period. If you have a card that offers cellphone protection, consider using it to pay your phone bill.
Cons
— Credit card interest. Carrying a credit card balance is expensive. If you charge utilities to your credit card and then let much of the balance sit, you could wind up paying much more than the original charge.
— Short-term solution. If you’re unable to consistently make utility payments, you may have deeper financial challenges. “You’ve got short-term structural problems you’ve got to fix,” says Ralph Bender, a certified financial planner and founder of Enduring Wealth Advisors. You might consider consulting a nonprofit credit counselor for more comprehensive help. “If you’re truly in a hardship situation, (counselors) can help you connect with organizations that can provide different types of assistance,” McClary says. “You don’t have to limit the solution to just the conversation with your utility provider.”
— Convenience fees. The utility company may charge a fee if you use a credit card to make your payment. These fees can be small, but they’re still worth avoiding if you can.
[Read: Best Starter Credit Cards for Building Credit.]
Does an Energy Company Charge More When You Pay With a Credit Card?
Energy companies may attach a fee when customers pay with a credit card, though the fee can be small. For example, Pacific Gas and Electric Company in California charges up to $1.35 when its customers pay their bills with a credit or debit card.
Which Credit Cards Are Best for Paying Utility Bills?
Your credit card isn’t an ideal choice for paying a utility bill if the rewards you’d earn from the payment don’t outweigh any fees and interest you’d accrue on the card balance.
Rewards credit cards don’t typically offer bonus points, miles or cash back for utility payments. If you have the U.S. Bank Cash+ Visa Signature Card, you could choose to earn 5% cash back on home utilities (on up to $2,000 in combined purchases each quarter on two categories you choose, then 1%). Otherwise, your best bet may be a card that earns a flat 2% rewards rate on most spending.
When it comes to cellphone bills, cards such as the Chase Freedom Flex® Credit Card and The Platinum Card® from American Express are solid cards with strong cellphone protection. That said, you shouldn’t open a new credit card just to get this perk.
[Read: Best Rewards Credit Cards.]
Does Paying Utility Bills Affect Your Credit Score?
If you pay your utility bills on time, your credit score won’t typically see any impact. If unpaid utility bills get sent to debt collectors, you’ll likely see a hit to your credit score.
If you’re looking to build a credit score and you consistently make your utility payments on time, you can opt into Experian Boost. This service allows consumers to incorporate payment history from utility bills into their Experian credit report — one of the three major credit bureaus.
But many other strategies can also help you build a positive credit history. You can start by checking your credit reports and making sure you never miss a payment on a credit account.
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Should You Use a Credit Card to Pay Utility Bills? originally appeared on usnews.com
