At a Glance
Setting up auto-pay on your credit card can be a great way to simplify your bill payments, but it’s not 100% foolproof. Here’s what you need to know.
In this article, you’ll learn:
What does “autopay” mean for credit cards?
“Autopay” is a system where you tell your credit card issuer to debit a certain amount of money from your linked checking or savings account every month on a certain date.
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How does auto-pay work?
Once set up, your credit card issuer will deduct whatever amount you specify from a linked checking or savings account every month on a certain date. There are a number of options you can use, including:
- Paying a fixed amount ($50)
- Paying the minimum amount every month
- Paying your full balance every month
You can also control the time of the month your payment is automatically made to be:
- Within a certain number of days before your deadline (i.e. 5 days before your payment due date)
- A certain date (i.e. the 5th of every month)
- On your payment due date
Pros and cons of automatic bill payment
|Simplifies bill payments||Can overdraft your bank account|
|Ensures you’re always paying your credit card on time||Hard to cancel within a certain number of days before the deadline|
|May not cover the entire balance|
What credit score do you need for autopay?
You won’t need any specific credit score that’s different from the score you had when you first opened your card. However, if your score drops below 500, you may run into trouble setting up autopay or keeping your account active, as credit issuers may see you as too high of a risk.
Is it a good idea to select autopay on my credit card?
If you’re good with payment deadlines and ensuring you’ve got enough in the bank, autopay can be a great way to passively keep your accounts in good standing. However, if your checking account balance fluctuates often autopay could cause your account to go negative and make you incur overdraft fees at your bank and potentially late payment or bounced payment fees from the credit card.
How to set up autopay ?
1. Pay minimum bill
Paying the minimum will only debit the minimum payment due from your account every month. Your account will be kept in good standing, but you should expect to accrue interest on the outstanding balance.
2. Pay the full balance
Paying your balance in full on autopay will automatically deduct the number listed as your “statement balance” and ensure you don’t incur any interest.
3. Pay a fixed amount
Paying a fixed amount allows you to set a budget every month for how much money you want to use to pay off debt, just make sure it’s enough that it covers your minimum amount due.
Tips to use autopay wisely:
1. Read the terms and conditions
Make sure you understand how autopay will work with your specific credit card account. In particular, you should check to see if there’s any cut-off deadline for autopayments to count toward your billing cycle and what to do if a payment doesn’t post in time. You should also check to see how many days you have before an autopayment is initiated to change or cancel it, should you need to.
2. Use a payment date that will be easiest for your income
Set up a payment date that works with your pay periods and ensures you’ll always have enough in the bank.
3. Decide what to pay
How much do you want to pay every month? You can select a certain amount, just the minimum payment, or your full balance. You’ll also be able to make additional manual payments every month if you want to, so don’t worry if you think you won’t schedule a high enough amount. The only requirement you’ll have is ensuring your payment satisfies the minimum amount due.
4. Set up alerts
It’s always a good idea to set up an alert on your phone or calendar for a few days before your autopay is scheduled to be deducted from your account. This way, you’ll always have enough in your account to cover it and can check back to ensure everything is posted correctly.
5. Check your statement frequently
The majority of the time, autopay will work seamlessly, but that doesn’t mean you shouldn’t keep track of your credit card on your own. Check your statements frequently to ensure payments are posted on time and for the amount you’ve specified.
What to watch out for while using auto pay?
Keep an eye out for:
- Your payment deadline – Make sure your autopay is scheduled for at least a few days before your due date. This will give you time to correct any mistakes in the event something goes wrong.
- Overdraft fees – Not having enough money in your account can make your autopay overdraft the account, causing you to get hit with overdraft or bounced payment fees.
- Fraud – Don’t become too passive with your credit card just because you’ve set up autopay. Check your statement regularly and look for purchases you don’t remember making.
- The payment amount – Make sure whatever amount you’re setting up for autopay satisfies at least the minimum payment due. Any amount less than that will incur late payment fees and interest charges.
Some lenders will do a soft pull for autopay setup, but these are mostly loan lenders. Credit card issuers may only do a soft pull once or not at all. Check the terms and conditions of your cardholder agreement to be sure.
The number of on-time payments you’ve made accounts for 35% of your credit score and is the most heavily-weighted factor in determining your creditworthiness. Setting up autopay will ensure your payments are always made on time and will help improve your credit score without any extra effort on your end.
Choose a payment date that’s a few days from your payment deadline and is a time you normally have money in your checking or savings account. Set up autopay to deduct the minimum amount due at first since you can always make additional payments manually. If you’re comfortable adding more to autopay, that’s fine, just make sure you’ll always have the amount necessary in your account.
Autpay can positively affect your credit score because it counts toward the number of on-time payments you’ve made. Your payment history accounts for 35% of your credit score and is the most significant factor for determining creditworthiness, so it’s a good thing to set up if you want to raise your score.
Pay the minimum, pay a fixed amount, or pay the full balance are the three options you’ll have available.
Autopay is only good for those who have a stable income and know how much they’ll have in their checking or savings accounts during a certain time. Those with less stable incomes, like freelancers and entrepreneurs, may not be comfortable using autopay and prefer to handle their payments manually.