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It can be tough to keep track of all your monthly bills. And if you've ever missed a payment, you might have an idea of what it can do to your credit scores.
Automatic bill pay is a simple and easy way to help your credit scores by protecting against any missed payments. Payment history is the most important aspect of your credit scores, and even one late or missed payment can have a negative impact on your scores.
How Automatic Bill Pay Can Help Your Credit
Because payment history is the most important part of your credit scores—accounting for 35% of your FICO® Score*—making sure you don't miss any payments is key to maintaining a good score. Once you miss a payment, a record of that delinquency may be sent to one or more of the three major credit bureaus (Experian, TransUnion and Equifax), and the record will remain in your credit file for seven years.
Setting up automatic bill payments is easy and can help you avoid missing any payments. Autopay works like this: You give your creditor your bank account information, and when your payment is due, they'll withdraw the proper amount directly from your account. Depending on the type of bill, you may also be able to use a credit card to pay. Alternatively, automatic bill payments can be set up through your bank account. For recurring bills of the same amount, you can schedule payments to be sent by most banks automatically.
While potentially bad for your credit, missing a bill payment might also cause you to incur expensive late fees. Credit card issuers often charge cardholders a late fee for missed or late payments. And be careful—you could be charged these late fees for each month you don't pay. If you catch this in time, you may be able to negotiate to have the fee waived when you pay, but being proactive and having your bills automatically paid is a better solution if you tend to miss payments.
What About Paying Utility Bills?
Historically, utility bills didn't have a direct effect on your credit scores—unless your account was charged off or sent to a collection agency. Until recently, even if you made all your payments on time, the positive history did nothing for your credit scores.
A new program called Experian Boost™†™, however, has changed that. Experian Boost allows you to get credit for past on-time payments toward utility and telecom bills, allowing you to boost your FICO® Score in just minutes. This game-changing technology is the first of its kind, and is the only way you can get a credit boost for your on-time utility payments.
Experian Boost doesn't consider late payments, so the more on-time utility payments you have, the better the chance you'll be able to get a score increase. Putting your utility bills on autopay is a good option if you're thinking about enrolling in Experian Boost, and it will also help you make sure not to get behind on your bills.
What to Watch Out For
Putting your bills on payment autopilot might sound great, but it's important that you still keep track of your bills to make sure there are no mistakes. With automatic bill payment, it can be easy to lose track of how much you're spending, which may lead to overdrafting your debit account—a whole other problem.
Automatic bill payment is best used as a security measure, but it's important to still know how much money is going in and out of your accounts. If you're juggling multiple bills, it may be good to enroll in electronic alerts that will help you stay on top of your payments. Also consider getting a free credit report to see where your credit is at as you work toward improving it with autopay.
Each creditor and bank is different, so if you are interested in automating your payments, contact your lender or bank for more information.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.