Why Autopay Is a Surefire Way to Boost Your Credit Score
Your credit score is like a report card for your credit habits — the higher your score, the better your credit behavior has been.
Making responsible choices, paying your bills on time and keeping your debt levels low can all result in a higher score. But there’s an easy tool available that can also help you keep that score up: autopay.
Autopay sets up monthly automated bill payments to your credit card, bank loan, auto loan, student loan, mortgage or any account with an ongoing balance. Once you set it up, payments automatically continue until you manually stop them or fully pay off the balance. Autopay can be set up through the company that’s billing you or directly through your bank account.
Can autopay increase your credit score?
The largest percentage (35%) of your credit score is based on payment history, so paying on time is a big deal. Unfortunately, mistakes happen — you might forget about a bill or get a due date confused. With autopay, there’s no opportunity for late payments. Your bills will be paid on time, every month, no matter what. And the more on-time payments you make, the stronger your credit history — and score — become.
Perks of using autopay
Putting your bills on autopay can create real peace of mind, but that’s not the only benefit:
- You may qualify for a lower interest rate. Some companies — student loan lenders, for instance — offer a slightly reduced interest rate if you sign up for autopay. That can save you hundreds or even thousands of dollars in interest over the lifetime of the loan.
- You save time. Paying bills doesn’t happen instantly. It takes time to gather your paperwork and figure out what’s going where. Putting everything on autopay means you don’t have to worry about making time to pay bills — it happens automatically.
- You save money. Late payments aren’t just bad for your credit score — they can cost you cash in the form of late fees, plus interest charged to any balance you haven’t paid off. And if your balance becomes more than 60 days overdue, your card issuer can raise your interest rate.
Bills you could put on autopay
- Credit cards. Credit card companies usually give you the option to automatically pay your bill each month, and you can choose how you’d like it to happen. You can pay the minimum balance only (to prevent a late fee in case you forget), pay the balance in full or pay an amount of your choosing (say, $200) on a regular basis.
- Student loans. You can almost always set your student loans to autopay for the lifetime of the loan — and lenders may give you a slight discount on interest for doing this.
- Cellphone. Your cellphone bill can most likely be set to pay automatically on your billing due date or a date of your choice each month.
- Fitness dues. If you pay for your gym or fitness studio monthly or annually, you can generally have that amount deducted from your bank account or charged to a credit card on the billing date.
- Utilities. You can frequently have bills like electricity and water set to autopay, meaning that the money is pulled from your bank account on the due date each month. You can increase your FICO Score for free through Experian Boost by paying your cellphone or utility bills on time.
- Subscriptions. If you subscribe to a newspaper or magazine, you can typically have those fees automatically charged to a credit card or debited from your bank account when they’re due.
How to set up autopay
Setting up autopay varies by company and account. In general, if you log on to your account online, there will be a menu option to set up payment information. If you don’t have an online account or can’t figure out where to go, customer service can direct you.
Some vendors allow you to pay via bank account or credit card, but others will charge a fee for credit card payments. If you choose to use your bank account, you’ll be asked for information such as the name of the bank, routing number and account number. If you choose to charge to a credit card, you’ll typically be asked for the card number, expiration date, security code and a billing address.
If you’re choosing between your bank and credit card, and you’re not sure which way to go, consider whether the autopay amount varies each month or if it’s a flat monthly payment. If the amount varies and you’re not charged a fee for it, you’re better off sending the payment to a credit card in case the balance is higher than you expect.
Beware these dangers of using autopay
Autopay has many advantages, but there are some downsides if you aren’t careful:
- You could face overdraft fees. If you don’t keep much of a balance in your bank account, you’ll need to be very careful about auto payments. An unexpectedly large water bill, for instance, could push you into overdraft territory, landing you with a fee from your bank. If this is your situation, you’re better off limiting autopay to bills that are the same amount each month so you can plan for them.
- You could forget about a service. If a subscription fee is being charged to your credit card each month, you may forget you’re being charged for it, even long after you’ve stopped using the subscription. Make sure you’re still examining your bank account and credit card statements each month so you’re aware of things that are being automatically charged to you.
- An error could be a big hassle. If you’re writing a check for $85, you’re probably not going to accidentally write it out for $850. But a vendor could mistakenly add a zero to your auto payment, leaving you working things out with your bank or credit card for weeks.
To get the most benefit from autopay, you must use it responsibly and for the right services, and you must be aware of your own banking behavior before signing up. Used the right way, however, autopay can save you time, hassle and money — and even boost your credit score in the process.