The credit score is determined by many factors, including payment history, credit utilization, and credit mix. Everyone wants a higher credit score and will exhaust all means to achieve it. Will recurring payments increase your credit score?
Generally speaking, a recurring payment shouldn't significantly impact your credit score. However, finance experts recommend using automatic payments to avoid missed payments, therefore, boosting your credit score.
However, there could be severe consequences if you do it incorrectly. Let’s look at the impact of automatic payments on your credit score and how you can provide authorization for recurring credit card payments.
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Recurring payments are payments you make regularly to cover credit card bills, utility bills, membership fees, and other recurring subscriptions. When using a credit card authorization form for recurring payments, you should inform your bank to withdraw from your account a specified amount or the total amount due to pay the credit card bill on a specific date.
If your bank has bill pay features, you can use them to make automatic payments. You decrease the likelihood of missing a payment by setting up recurring payments. As a result, credit scoring companies will view your consistent and updated payments as a sign of good credit standing resulting in a good credit score.
When you have multiple bills to pay every month, keeping track of them can be a headache. Setting up recurring payments ensures you don't miss one, especially when it comes to credit card bills, where one late payment can damage your credit score.
Before you go running to your bank and setting up recurring payments, here are several things you should keep in mind.
Payments aren't posted on your credit card account immediately after they are set up. There’s often a lag time between the time you set up the payment and the time it gets processed. Take note of this lag time and consider it when setting your recurring payment date.
Ideally, the payment should be posted before the bill is due to avoid missed payments. Moreover, knowing the processing time will help ensure your account is sufficiently funded so rejected payments can be avoided.
Your credit card bill will look different every month in terms of amount. Likewise, even if you use it for the same purposes monthly (like subscription fees and bills payment), the minimum amount due can change with a new billing cycle.
It’s always wise to check your credit card statements, so you know how much you have to pay each month. This will ensure you don’t run out of funds and trigger your overdraft protection or incur additional interest fees.
If you don’t regularly keep track of your accounts, you may overspend on your card and not have a sufficient amount to cover what’s due. This will not only cause a missed payment which would be subject to late penalty fees, but you can also incur a “returned check” charge from your bank and the company you’re paying.
Instead of helping boost your credit score, a missed payment would be a big hit against your score. To prevent this, set up a calendar reminder so you know when you’re automatic payments are due, and you can check your bank account to ensure the funds are sufficient. If not, you have time to fund the account or make adjustments to your automatic payment.
To achieve a maximum credit score, opt to pay the full balance each month. This can be tricky because you need more than enough funds to cover the changing bill. If you’re cash-strapped, you can always elect to pay the minimum due. This is better than nothing but remember, the remaining balance will incur interest.
An alternative to both cases is to determine a fixed amount higher than the minimum, for example, $250, and use that to pay the balance. You will still incur interest but not as much if you only opt to pay the minimum.
One way to protect yourself from missed payments due to insufficient funds is by setting up overdraft protection. An overdraft line of credit is a backup in case your current funds fail to meet the required payment. However, these are subject to overdraft fees, so it’s best to use them only as a last recourse.
Recurring payments are convenient ways to pay your credit card bill, so you don’t miss them. You are still responsible for monitoring your monthly credit card bills and ensuring you have enough funds to pay the total balance.
The best way to increase your credit score is with timely payments made in full. If you can commit to that, get your bank's recurring credit card payment authorization form and set up automatic payments.
To learn more about credit card benefits, tips, and uses, check out our resources at Processing Card.
Florence Carpenter is passionate about ensuring that the process of opening merchant accounts is as straightforward as possible. She graduated from the University of Michigan with a bachelor’s degree in Marketing.
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