Is Autopay Good for Your Credit?

Is Autopay Good for Your Credit?

by | May 10, 2022

Autopay is a fantastic tool that automatically schedules payments repeatedly to pay your bills, such as your electricity bill, credit card, gym membership, etc.

Basically, you’re authorizing the credit card issuer or lender to automatically withdraw funds from your bank account on a stipulated date. Once set, the tool deducts the minimum payment due, the amount you choose to pay, or the full statement balance.

Late credit card payments can harm your credit. But with the help of autopay, you can help avoid late fees and streamline your finances. But can autopay help protect your credit scores? Here’s what you need to know about autopay and your credit scores.

Benefits of Autopay for Your Credit

The best way to positively impact your credit score is to have a good payment history. This is important because 35% of your credit score is determined by your payment history. Therefore, paying your bills on time is crucial.

Your credit can be negatively affected if you forget about bills or confuse the due dates. That’s where autopay comes in.

So long as you’re sure you have the required funds in your checking account every month, autopay helps ensure your bills get cleared on time. As a result, you can work toward good credit.

But what if you have a few delayed payments on your credit report? All is not lost! Autopay can help streamline your payments and positively impact your credit scores.

You can also use the automated payment for other service provider accounts such as utilities and cable.

Besides that, using autopay for other service payments can help you save money. For example, some banks and credit card companies offer you reduced interest rates if you use autopay. You can also save time since you don’t need to worry about making timely payments.

How Autopay Can Negatively Impact Your Credit

As much as autopay can positively affect your credit scores, it can also negatively impact them in certain situations. For example, credit scores are very sensitive to late payments.

Unfortunately, credit reports have no distinction between delayed bill payments caused by a funds shortage versus one resulting from human error.

If you don’t have enough money in your bank account, avoid automated payments. If you’ve set up a bill for automatic payment and lack enough funds in the account when the bill is due, the company can mark it as a late payment and report it to major credit bureaus, negatively affecting your credit scores.

Sometimes, payments change in amount. For example, you can set up autopay to pay $1,500 for your mortgage every month. But then the mortgage increases by $10, meaning you have to pay $1,510. If you don’t have enough money to cover the increment, it can negatively affect your credit history. Even if you pay the amount later, the late payment can still get included in your credit report unless you ask the company to remove it.

Bottom Line

Autopay might streamline your finances and positively impact your credit score. But you should use this tool wisely.

Also, it’s wise to sign up for a credit monitoring company to stay updated on changes to your credit report. A monitoring service can help you know your scores and alert you when they notice suspicious activities, such as new loans in your name. You can also enjoy other benefits such as identity theft protection.


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*Source: Fair Isaac Corporation.

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