Busy cardholders will likely want to take advantage of any opportunities to streamline their finances. A commonly used credit card feature that offers repayment convenience is automated credit card payments, or credit card autopay.
Understanding what autopay is and how it works can help you decide if enrolling in automatic payments is right for you. There are definite benefits to setting up autopay, but there are downsides to take into account as well. You’ll also need to consider how you’d like to configure credit card autopay, as there are a few different options.
What Is an Automated Credit Card Payment and How Does it Work?
An automated credit card payment is a recurring payment that’s scheduled for the same day each month. The automatic payment is typically made on a date that’s either before or on the statement due date.
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Autopay allows cardholders the convenience of making payments on a periodic basis without having to manually set up payments. This also helps with avoiding late or missed payments.
When you enroll in automated credit card payments through your credit card issuer, you’re authorizing the issuer to request a certain payment amount on a specific date from your banking institution. When the autopay date arrives, your card issuer’s bank will send your bank an electronic request for the payment amount you’ve set up.
Your bank then will fulfill the payment request and send it to the merchant’s bank (i.e., your card issuer).
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Credit Card Autopay Options
There are a few ways to approach automatic bill payments through your card issuer. Each has its benefits and caveats, so assess your own financial situation before choosing an autopay strategy for your credit card.
Paying the Minimum
One option is establishing automated credit card payments for the minimum amount that’s due on your billing statement. The minimum payment is the smaller amount due that’s shown on your statement or online account, and the amount of it varies based on your total charges at the close of your card’s billing cycle.
Selecting to pay the minimum can be useful if you don’t have enough money to repay the entire statement in one fell swoop. By paying the minimum, you’ll fulfill the issuer’s minimum requested payment and keep your account in good standing — which, in turn, helps keep your credit score in good standing.
However, this means you’ll roll over the remaining statement balance into the next billing period, which will lead to incurring interest charges due to how credit cards work.
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Paying the Full Balance
You also can choose to pay the full balance as shown on the billing statement for each recurring payment. Paying the full balance is beneficial, because it allows you to avoid having a balance roll into the following billing cycle. This, in turn, means you won’t need to worry about accruing costly interest charges.
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Paying a Fixed Amount
Another option is to set up automated credit card payments for a specific, fixed amount. For example, if you exclusively use your card to pay your fixed monthly cell phone bill of $50, you can establish an autopay for $50 toward your account on a recurring schedule. You can also use this option if you’d like to make extra credit card payments throughout the month.
Benefits of Automatic Credit Card Payments
Choosing a credit card that allows autopay can be helpful for various reasons. These are a few of the major upsides to enrolling in automated credit card payments:
• You won’t risk forgetting about a payment due date.
• You’ll avoid penalty fees and penalty annual percentage rates (APRs) for making a late payment.
• Your positive payment history is maintained.
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Drawbacks of Automatic Credit Card Payments
There are also some caveats to consider before you set up autopay. This includes the following:
• You might face other fees if you have insufficient funds upon autopay.
• You might slack on reviewing your monthly credit card statement for red flags.
• You might inadvertently overspend on your card.
Factors to Consider Before Setting up Automatic Credit Card Payments
Before setting up automated credit card payments, honestly assess your finances and habits. Verify that you have sufficient deposits into your checking or savings account to cover the autopay amount you’ve set up.
And if you do set up automatic credit card payments, make sure you continue to check your monthly billing statements. Confirm that all transactions are yours and are accurate, and that your total spending is still manageable.
Setting up Automatic Credit Card Payments
The exact process for how to set up automatic credit card payments can vary somewhat from issuer to issuer, but in general, it’s pretty easy to do. You will need to first log on to your credit card account either online or through the mobile app. It’s also possible to call the number listed on the back of your card to have someone talk you through it.
Pull up the section labeled payments, and you should then be able to find an option to manage or set up autopay. You’ll need to connect a bank account where the payments will get pulled from and select the date and frequency at which you’d like the payment to occur. You should also be able to select which payment option you’d like (minimum due, the full balance, or another amount).
Tips for Stopping Automatic Payments on Credit Card
If you have credit card autopay activated on your account, but need to halt automated payments moving forward, federal law protects your right to rescind authorization for automatic payments. Here are a few ways to go about it:
• Turn off autopay through your card issuer. Many credit card issuers give cardholders the ability to turn autopay on or off through the app or via their online account’s payment settings. Just make sure you do so before the next automated payment is processed.
• Revoke authorization from your card issuer. Call your credit card issuer to revoke authorization for autopay. Then, follow up the call with a written letter revoking authorization, and requesting a stop to automatic payments on your account.
• Request a stop payment order from your bank. You can also contact your bank to place a stop payment order on any automated payment transactions requested by the card issuer.
Regardless of how you stop automated payments from occurring, continue reviewing your monthly statement and account activity to ensure that the autopay has ceased.
What Happens if You Overpay Your Credit Card Balance?
Let’s say you inadvertently set up autopay to higher than the balance — what could you do then? Typically, credit card overpayments are processed as a negative balance. A credit for the overpaid amount should be reflected on the next billing statement, assuming your new transactions bring your account above a zero balance.
However, you do have the right to request a refund from the card issuer, instead of having it applied as a credit. The Federal Deposit Insurance Corporation (FDIC) has in place regulatory credit card rules for card issuers when it comes to an overpayment on your card account. It states that upon receipt of a consumer’s written refund request for an overpayment, an issuer must provide the refund within seven business days.
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The Takeaway
Automated credit card payments are a convenient option, particularly for busy cardholders. In addition to helping you keep your card account in good standing, autopay can provide peace of mind. By automating payments, you’ll more easily avoid credit card delinquency, penalty fees, and penalty APRs for late payments.
Having a card that gives back through rewards is another useful feature to look out for in a credit card. When you apply for a credit card with SoFi and get approved, you can earn competitive cash-back rewards on all spending. For a limited time, new credit card holders† who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/23.
FAQ
Is it a good idea to automate monthly credit card payments?
Whether enrolling in automated credit card payments is a good idea depends on your current financial situation. You must reliably have the payment amount in your checking or savings account each month, and not be at risk of overdrawing or having insufficient funds. Also consider your other financial responsibilities and personal money management habits to decide if automated payments are right for you.
Do automatic payments affect your credit score?
Thirty-five percent of your FICO credit score calculation is based on your payment history. Automatic payments can help you make on-time payments for at least the minimum balance due so your payment history remains positive. As long as the deposit account that automatic payment is drawn from has adequate funds, the credit card autopay transaction can be advantageous to your credit profile.
Do banks charge for automated credit card payments?
No, banks and credit card issuers don’t charge an additional fee to make automated credit card payments. Autopay is intended as a payment method convenience for cardholders. But ultimately, it helps card issuers and banks better secure repayment from customers, thereby lessening the risk of a late payment or delinquent account.
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