Home Improvement Rewards Credit Cards

I'm about to renovate my new house. It's a foreclosure, and while it's in pretty good shape for a foreclosure, it's not exactly move-in ready (unless I wanted to live with stained carpet, a broken oven from the 1960s, partially unfinished walls . . . you get the idea). So since I'm going to have to spend a bunch of cash on home improvement, I'd like to take away a bit of the sting by paying for the purchases with a rewards credit card and getting some cash back.

Here are the best options I found if you're specifically looking to save money on home improvement costs.

1. Chase Home Improvement Rewards Card. Gives you the ability to earn 3% cash back on home improvement purchases and 1% back on all other purchases. What's the catch?

-The merchant has to have categorized itself with Visa as a home supply warehouse store, a lumber/building supply store, a glass/paint/wallpaper store, or a hardware store. (You'll note that floor covering store is not on the list, and one of the major things I'm buying is hardwood floors from a flooring store.) There's no way to really know how your purchase is going to be categorized until you make a purchase, go home, check your statement, and see how it was categorized. Fortunately, Chase let's you see this information online as soon as the transaction posts. So you may want to take your new card, go spend $5 at Home Depot, wait for the transaction to post and make sure it was categorized as a home improvement purchase before you go out and spend another $2,000. This is especially true of smaller merchandisers, which in my experience are sometimes less likely to be categorized the way you'd expect. For example, I recently made a purchase at a small, local pharmacy and Chase categorized it as "other," not "pharmacy." So I'm only going to get 1% cash back on that purchase instead of 3%.

-Maximum point accumulation is 30,000 points annually on home improvement net purchases. At 3 points per home improvement dollar spent (i.e., 3% back per $1), that's a maximum of $10,000 you can spend per year on home improvement purchases that will earn the full 3% cash back. $10,000 can get eaten up pretty fast in a home renovation, so if you're planning to spend more than that, you may want to get more than one home improvement credit card to max out your benefits.

-Maximum 60,000 points annually on all other net purchases. You get 1% cash back on all other purchases, so you can get 1% back on $60,000 of additional purchases, home improvement or otherwise. Not too many households will have to worry about maxing out that benefit limit in a 12-month period.

2. Bank of America Home Advantage Mastercard with WorldPoints Rewards. Earn 2 points for every $1 spent at most home improvement, furnishing and electronic stores and 1 point per $1 spent on everything else. What's the catch?

-This deal only applies for the first 12 months. However, if you're moving into a new place, you'll probably be spending a lot of home improvement money in the first 12 months or less, so this isn't really an issue. It might mean that you decide to ditch the card after 12 months when it becomes less valuable, though. If you have a spouse or significant other, though, one of you could probably have the card for one year and then the other one could sign up for a new account and get another 12 months.

-From their terms and conditions: "Eligible net retail transactions are those made at retail locations classified by the retailer to Visa or MasterCard as being one of the following:
Office and commercial furniture
Home supply warehouse stores
Furniture, home furnishings and equipment stores
Floor covering stores
Drapery, window covering and upholstery stores
Fireplace, fireplace screens and accessory stores
Miscellaneous home furnishing specialty stores
Antique stores
Glassware, crystal stores
Household appliance stores
Electronics stores
Computer software stores
Electrical parts and equipment
Hardware, equipment and supplies stores
Paints, varnishes and supplies stores
Lumber, building materials stores
Glass, paint and wallpaper stores
Hardware stores
Nurseries, lawn and garden supply stores

As you can see, the bonus categories with this card are much more liberal than with the Chase home improvement card. So if you got both cards, you could get 3% back on any home improvement purchases covered by the Chase categories and 2% back on anything covered by the Bank of America categories. There does not appear to be a monetary limit on how much cash back you can earn in these categories at the 2% rate, just the 12-month time limit.

Other Considerations

-Another catch with all of these cards in terms of maxing out your cash back: let's say you can only get a credit limit of $2,000 on the Chase Home Improvement Rewards Card and you need to spend $3,000 at Home Depot for kitchen renovations. You're only going to be able to get 3% back on the first $2,000 of your purchase, and you'll have to pay the other $1,000 either with another home improvement credit card, another rewards credit card (that presumably has a lower reward amount, like 1% cash back), or with cash. So how much you plan to spend and how quickly you plan to spend it will also affect your ability to maximize your cash back rewards.

-How to get around this? Well, if you don't have to make one lump payment, you can always max out your card, run home and pay it off online, and then you'll have a fresh $2,000 to start with. Perhaps you're buying new kitchen cabinets and you can pay for part of them when you place the order and the rest when you pick them up, for example.

-Yet another catch: You can't apply for new credit cards while you're in the process of buying a house because it dings your credit score. The last thing you want to do while trying to get a loan is cause your credit score to decrease, because that could get you a higher interest rate or disqualify you from the loan altogether. So you have to either do it significantly before you start house shopping (so your credit score has time to recover) or after your loan has closed. Well, if you do it after your loan has closed, your credit report is going to show that you just took on a massive amount of new debt, and lenders may not be so inclined to give you a new credit card at all, let alone a new credit card with a high balance limit. So keep that in mind.

Of course, it's also important to keep in mind that if you're not going to pay off your credit card in full and on time, none of these cash back cards are going to help you. The rewards you will earn will pale in comparison to the late fees and/or interest charges you will accrue. These cards do have 0% introductory APR offers, but I don't like to mess with those because I'm afraid I'll miss a monthly payment (you still have to make the monthly minimum payments--you can't just charge your purchase and forget about it for a year) and trigger the maximum interest rate penalty. There are people out there who make great use of 0% APR deals, though, so if you're one of them, consider that an added bonus of these home improvement credit cards.

Photo by booleansplit

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