Have you considered placing your credit card on an automatic payment plan? By linking your credit card to a bank account and having your monthly payments automatically deducted, you do not have to worry about the possibility of missing payments and harming your credit score.
However, it does take some planning to set up your auto-payment plan properly to avoid other mishaps that can adversely affect your credit. Here are 5 tips to help you embark on an auto-payment program.
1. Schedule Payment Timing and Amount – If your charge pattern and/or income is not predictable, there are going to be occasional mismatches in your cash flow. Without managing your cash flow, your payment deduction date could end up falling in a gap between a peak balance on your card and your next paycheck. You could run the risk of dropping below minimum deposit requirements for your account, or end up with an overdraft and subsequent penalty. Look over your regular cash flow, choose your payment deduction date accordingly, and keep that date in mind when making large, unplanned charges. You could also try to change your credit card due dates to improve cash flow.
You can usually set up an auto-payment to provide amounts other than the full balance due, but do so with care. If you set up a fixed payment too low, your balance can creep up over time. Your credit score will be reduced through using more of your available credit, and you will pay unnecessary interest.
2. Keep a Cash Buffer – If possible, keep extra money in your bank account to serve double duty — as an emergency fund and also a cash buffer just in case unexpected expenses disrupt your monthly cash flow. If you don't have the discipline to leave that money untouched, place it in a separate account that can be immediately transferred over to your main account in case of emergency. Quick access is key.
3. Set Up Alerts – Automatic payments are generally reliable, but they are not infallible. Most accounts allow you to set up alerts for specific events such as when payments are due, when payments are posted, or when charges hit a certain limit. Set up all the alerts you need to verify that your payments and charges are on track. At the bare minimum, set up alerts for payment postings, since missed payments have a significant negative effect on your credit report. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
4. Check Your Account Regularly – While alerts are useful, there is no substitute for checking your account regularly to verify that there are no unexpected charges or odd posting times that disrupt your cash flow. Get in the habit of checking your account balances several days before the automatic payment is processed. That way you have a few days to correct any issues that you find. A quick check on payment day is not a bad idea, either.
5. Review the Terms and Conditions – Every bank and credit card issuer has different terms and conditions. Be sure to read them in detail so you know how to handle any issues that may arise. If you realize that you are on the verge of an overdraft, what are your options to avoid an overdraft? Can you make manual payments on top of an automated payment? What are the penalties if you do have an overdraft?
Don't let the convenience of automated credit card payments lull you into a false sense of security. Follow the tips above and you can enjoy your convenience without having to worry about the effect on your credit score, or your finances in general.
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