Dont let car repairs bog you down: Repair your credit and your car at the same time

Car repairs always seem to pop up at the worst time. They’re often pricey, and without a plan, they could derail your budget.

Instead of stressing over the cost, consider this: You may be able to turn your next car repair into an opportunity to boost your credit score. By paying for the repair with a credit card and responsibly managing the balance, you can make a potentially frustrating situation work to your advantage.

Big expenses aren’t always bad news

Unexpected expenses can throw a wrench in your plans, especially if they’re significant. But with the right strategy, you can use it as an opportunity to demonstrate your creditworthiness. When you use a credit card to cover big expenses, like car repairs, you’re creating a chance to show lenders you can manage debt responsibly. That’s exactly what credit scoring models look for.

Making consistent, on-time payments and responsibly managing your balance shows creditors you’re capable of handling larger financial commitments. Over time, this could boost your score.

If you’re looking for options to boost or repair your credit, you may be able to use a situation like this to your benefit in the long run.

The smart way to use credit cards for car repairs

Using a credit card to pay for car repairs could be a smart move — but only if you go about it in the right way. Without a plan, it’s easy to let interest charges or overspending cancel out the benefits. Taking a strategic approach helps ensure this move doesn’t do more harm than good.

Step 1: Evaluate the expense

Before you pull out your credit card, take a minute to assess the cost of the repairs relative to your income. While credit cards can offer flexibility, carrying a balance for too long can lead to steep interest charges that may outweigh the credit-building benefits.

Use a credit card payoff calculator to better understand your repayment options. Enter the balance and interest rate, then either set a target payment amount to see how long it will take to pay off the balance or choose a payoff timeline to determine the required monthly payment. Both options will also show you how much interest you’ll pay overall, helping you decide whether using a credit card is the best choice for covering the repair.

Step 2: Choose the right card

The right credit card can make a big difference, especially when it comes to large expenses. You may benefit from a card with features such as:

• 0 percent APR promotional offers: Allows you to pay off the expense over time without accruing interest.
• Rewards programs: Cash back, points or miles help you earn while you spend.
• No annual fee: A card with no fee helps you avoid additional costs.

If you plan to use an existing credit card, check your available credit to make sure it can cover the repair cost without significantly increasing your credit utilization ratio (the portion of your total available credit currently in use). Ideally, you want to keep your utilization below 25 to 30 percent of your total credit limit, as exceeding this threshold may negatively impact your credit score.

If the expense is large, a card with a higher limit may help you spread out the cost without nearing or exceeding your credit limit, reducing the risk of harming your score. Otherwise, you may benefit from opening a new credit card account.

Step 3: Plan your payments

Start by creating a realistic plan to pay off the balance as quickly as possible. If you’re using a 0 percent APR card, aim to pay off the entire amount before the promotional period ends to avoid interest charges.

Breaking the balance into smaller, consistent payments helps keep you on track and allows you to build a strong payment history, which is one of the most important factors in determining your credit score.

Even if you can’t pay the card off as quickly as you would like, always make at least the minimum payment on time. Late or missed payments can significantly lower your credit score, undoing the benefits of using the card in the first place. Consider setting up automatic payments to avoid unintentionally missing payment due dates.

Avoid these pitfalls when using credit cards for car repairs

While using a credit card for car repairs may be a smart way to manage costs and build credit, it’s important to steer clear of common mistakes that can turn this strategy into a financial setback.

1. Maxing out your credit card

If the charge puts your credit balance too close to the limit, it may push your credit utilization ratio into a potential danger zone. Maxing out your card also leaves little room for other emergencies.

To avoid this, consider splitting the payment across multiple cards or paying a part of the bill up front in cash to keep balances more manageable. If neither of these options seems feasible, you may consider other financing solutions, such as a personal loan or auto repair financing plan.

2. Relying on high-interest cards

High-interest credit cards can turn a manageable repair bill into an expensive financial burden, especially if you’re unable to pay off the balance quickly. With rates often exceeding 20 percent, the added interest can substantially inflate the total cost of your repayment, especially if you carry a balance for more than a few months.

Before using a credit card, check its annual percentage rate (APR). If it’s high, consider other options with lower rates. And if you’re using a card with rewards, make sure the benefits outweigh the potential interest costs.

3. Failing to have a plan

Charging car repairs to a credit card without setting a realistic repayment timeline can lead to unnecessary financial stress. Without a clear plan, it’s easy for balances to linger, racking up interest and making it harder to pay down the debt.

Rather than just focusing on making the minimum payment, map out how much you can realistically afford to pay each month. Factor this into your budget to ensure you’re prioritizing this repayment over discretionary spending.

4. Overspending

Be careful not to let the cost of your car repair spiral. Shop around to find a fair deal and focus on the repairs your car truly needs. Ask for a detailed estimate, and if the quote seems high or includes optional services, don’t hesitate to get a second opinion.

Also, resist the temptation to add unrelated purchases to your credit card. While it might feel convenient to bundle other expenses, this can quickly inflate the balance, making it harder to pay down.

Maximizing credit card benefits

When done correctly, using a credit card for a major purchase like a car repair may lead to significant benefits. These quick tips can help you make the most of this strategy.

Choose rewards that align with your needs

If you’re planning to use a rewards card, look for one that offers perks that align with your goals. For example, you may choose a card that offers:

• Cash back: Perfect for reducing the net cost of your repair bill.
• Travel rewards: Ideal if you’re saving points for a vacation or you’re a frequent traveler.
• Gas rewards: Redeeming points for discounts at gas stations could help lower your overall transportation costs.

Monitor your credit progress

Regularly check your credit score to see how your responsible card usage is paying off. Also, periodically review your credit report to make sure there are no errors. Some cards offer free credit tracking features, so be sure to take advantage of this perk if it’s available to you.

Turn problems into possibilities

While nobody wants to deal with expensive car repairs, taking the right approach may help turn these unexpected costs into opportunities. Strategically using a credit card to pay for car repairs may help you budget for the expense while building your credit. You might even earn some rewards.

The key is planning: Choose the right card, create a realistic repayment timeline, and avoid pitfalls like overspending or carrying a balance for too long. Remember, the way you handle today’s financial challenges may be the first step toward tomorrow’s success.

Frequently asked questions

• Can I use a credit card for any type of car repair?

  Most car repair shops accept credit cards, but it’s a good idea to confirm ahead of time. Some shops may offer their own financing plans, which could be worth considering if the terms are favorable.

   

• Is it a bad idea to use a credit card if I can’t pay off the balance immediately?

  Not necessarily, but it depends on your card’s interest rate. If you can pay off the balance within a 0 percent APR promotional period or a reasonable timeframe, it may still be a smart choice. Otherwise, the interest charges could outweigh the benefits.

• Should I use my emergency fund instead of a credit card?

  Using your emergency fund could help you avoid carrying a credit card balance. However, using a card responsibly may help you maintain cash reserves while building credit, especially if you can find a 0 percent APR offer.