Should I Set Up Automatic Payments for My Credit Card?

On the downside, autopay may cause you to ignore your credit card account and lead to overspending and higher levels of debt.

These days, many credit card companies offer the option to set up automatic payments, or autopay. Thanks to this feature, you may never have to worry about making a late payment or missing one altogether — either of which may lead to fees and a reduced credit score. 

However, autopay may not be the right solution for everyone.

In this article, we'll explore when it pays to set up automatic payments for a credit card and when it may not be a good option. But first, let's go over some autopay basics.

What Are Automatic Payments for a Credit Card?

Autopay is a feature offered by many credit card issuers allowing card holders to set up automatic payments every month. The payment is withdrawn directly from a linked bank account every month, like clockwork. There's no need to log in and go through the payment process after autopay has been initially set up.

Many issuers allow customers to set up autopay over the phone, via a mobile app, or online. Usually, you can locate the autopay options in the card payment settings section of the app or website (after logging into an account).

Typically, when setting up autopay, users may choose which day of the month they wish to make the automatic payment, as well as the amount to pay — for example, the minimum payment, the full current balance, or another predetermined amount. Some banks may also allow cardholders to set up multiple automatic payments per month.

The Benefits of Setting up Automatic Payments

If you're wondering whether you should set up automatic payments for a credit card, here are some of the advantages of using this feature.

It May Give Your Credit Score a Boost

One of the most important factors in determining your credit score is the timely payment of credit card bills. Payment history alone accounts for roughly 35% of your FICO score, a credit reporting score used in more than 90% of lending decisions.^[1]

This means if you miss payments, it could become harder to get approved for a mortgage, a car loan, an additional credit card, or any other kind of lending instrument. And even if you do get approved, you may have to pay a higher interest rate than someone with a higher credit score.

By setting up automatic payments for a credit card and keeping the payment account details accurate, you may ensure that payments are always made on time and are never skipped. In turn, this may raise your credit score (or keep it from falling). 

Setting up automatic payments may also help consumers with little credit history establish a positive standing without much effort. Having little or no credit history may make it as difficult to get some kinds of loans as having a low score does.

It May Help You Save Money

In addition to lowering your credit score, missing a credit card payment or paying a credit card bill late may have other negative effects. 

When a payment becomes past due, the credit card issuer may charge a late fee. The money lost to credit card late fees could be put to a better use (such as earning interest in a high-yield savings account). 

Additionally, some credit card companies may charge late bill payers a higher annual percentage rate (APR), which is the interest rate plus any additional fees the lender charges.  This is often referred to as a "penalty APR" and can be higher than 30%, depending on the issuer. 

And if you have a credit card with a current 0% APR promotion on transfers or purchases, it's possible to lose that benefit if payments are skipped.

It's worth noting that not all credit card issuers impose the same penalties on late billpayers. Check the documentation you received when you applied for a credit card or call the bank to determine its penalties.

It May Be Extremely Convenient

Putting automatic payments in place on a credit card account is largely a "set it and forget it" process. By using autopay, you may eliminate the need to worry about logging into a credit card account, calling an issuer's bill pay hotline, or mailing in a paper check on time. If autopay is set up correctly, you can ensure each payment is made on time.

However, there are times when you'll need to log into the account. It's important to keep the account — especially the payment method — up to date. For example, if you get a new bank account number, log in to change the payment method for the credit card automatic payments right away to avoid any late penalties.

The Potential Downsides to Automatic Payments for a Credit Card

Of course, there are some potential negatives to setting up automatic payments for a credit card. Here are a couple of the biggest downsides.

It May Cause an Overdraft

If there's not enough money in the linked bank account to cover the automatic payment amount, you may overdraft your account. In this case, you may have to pay a fee to the bank for having insufficient funds. You may also have to pay a returned payment fee from the credit card issuer and face late payment penalties as well.

To avoid overdrafts, it may be useful to calculate how much will be automatically withdrawn each month and make sure to keep a minimum balance higher than that amount in the linked account.

It May Lead You to Lose Track of Your Accounts

The "set it and forget it" nature of automatic payments can be dangerous for some consumers. When you don't regularly log into a credit card account online or examine the monthly statements, you risk losing track of spending. This may lead to racking up an untenable amount of debt.

In addition, ignoring a credit card account may make it hard to spot fraudulent activity.

By regularly checking a credit card account with autopay enabled, you can monitor activity, adjust spending, or alert the issuer to unauthorized activity on the account.

The Bottom Line: Should I Set up Automatic Payments for My Credit Card?

As with most financial matters, the choice to set up automatic payments for a credit card is personal and should be made only after considering your own unique situation.

Setting up automatic payments may be a good solution if you exercise good financial discipline and don't run the risk of overspending. However, if "out of sight" means "out of mind" to you, there's a risk of racking up too much debt.

Automatic payments may also be a good choice if you are able to keep a high enough balance in the linked checking or savings account to cover the monthly payment amount selected. If there are insufficient funds in the account, you run the risk of paying overdraft fees and penalties.

However, if you want to raise your credit score to prepare for a major purchase such as a new home or car, automatic payments may help with that goal. After all, autopay may help prevent skipping or missing credit card bill payments.

Autopay may be a helpful tool when used responsibly. Evaluate your situation before opting for this feature to ensure you keep the payment information accurate.