How to set up automatic credit card payments
Setting up automatic payments for your credit card balances can help you avoid late payments, which can help you build your credit score. Let's look at how to set up automatic payments, what amount you may want set it to, and how to use an automatic payment strategy to build and sustain a strong credit foundation.
Three ways to set up automatic payments
Credit card companies make it simple to set up an automatic payment method, so pick the way that works for you.
Checking in with your account online should allow you to easily search and find "automatic payments" options. Try finding an option to pay your bills then look for mentions of "automatic payments" or find a chatbot to answer the question. You will likely need to provide your bank account information to tie to the payment and agree on a date that matches your current payment schedule to complete the process.
Many credit card apps include opt-ins for automatic payments. If you already have the app, search for "bill payments" options to find the screen that can enroll you in an automated program.
Find the credit card's customer service number on the back of the card and dial in. If you hit automated reception, mention "automatic payments" to connect you to a representative that will walk you through the enrollment.
How much to commit to an automatic credit card payment
There are various payment strategies for setting up automatic payments:
If you usually pay the monthly minimum on your credit card, you can select this option to help ensure that you don't miss a payment. Be aware, however, that if you spend on the card, your minimum monthly payment can increase.
If you are looking to reduce a credit card balance, setting a specific amount above the monthly minimum payment can help reduce your overall balance.
Paying off your entire credit card balance each month is another strategy that can help reduce your debt and improve your credit score. By paying off your card's full balance each month, you can also avoid interest charges and late fees that may come into play when maintaining a high balance. When setting up automatic payments to cover the full balance of your account, make sure that you are setting payments with a bank account that can cover the balance.
What to check after you set up your automatic payments
You've logged in or called in your automatic payment and set the amount of your payment: but don't think your job is finished.
Are the payment dates right?
Your original credit card payment dates may simply be the date of the month you initially opened the credit account. Now that you are working to simplify your payments through automation, consider moving your payment dates to align with your paycheck or other bills. If your bill is due at the start of the month along with your rent and other bills, moving the credit card bill to mid-month may provide you with a bit of breathing room. You should be able to adjust your payment date through an online request or a call to customer service.
Set up payment alerts and monthly balance checks
Is your bank account able to handle the automatic payments you set up? Are you contributing enough of your budget to reduce your credit debt? Are all the charges on your cards legitimate? Setting up a monthly review of your bills and payments ensures that you catch fraud if it exists, manage expenses as they arise, and refine your payment strategy to meet your evolving credit needs.
Opting in for payment alerts is another way to monitor your expenses and your payments to keep you on track through automation.
How setting automatic payments can improve your credit score
The two major credit score models (VantageScore® and FICO®) may consider on-time payments as factors when calculating your credit score. By setting up automatic payments, you are ensuring that your bills are paid on-time each month.
If your automatic payment covers more than the minimum or the full balance, then you drive down your credit utilization ratio, which divides the total amount of your credit limits by the total balances you owe on your cards. A smaller credit utilization ratio may build a higher credit score, so using your automatic payments to reduce your debt can also drive credit score improvement.
What are the risks of setting automatic payments?
The main risk to automatic credit card payments is the possibility of overdrafting your bank account, which means you could miss your scheduled automatic payment. If you haven't used automatic payments in the past, you've likely checked your bank account before making a credit card payment to make sure you have enough funds to cover the payment. If you implement automatic payments, continue to make it a habit to check your bank account funds so you can avoid any overdraft fees or missed payments.