Ask Money

Automatic bill payment

Chris Farrell Aug 13, 2009

Question: I understand that credit card companies take a dim view of certain credit-using behavior when deciding on your interest rate. For instance, I’ve read on this site that you shouldn’t use credit cards at the salon, at bargain stores, or for purchasing alcohol. What about monthly bills, though? American Express offers double rewards points for setting up your monthly bills (utilities, cable, phone service) to be paid automatically with the card. I already have these bills set up to be paid automatically from my checking account each month anyway, so is there much difference in shifting them to my AmEx and gathering the extra rewards points (to transfer to frequent flyer accounts, or to help out with Christmas gifts, etc.)? And will this have a detrimental effect on my credit score? Suzanne, Rochester, NY

Answer: The biggest factor in determining your credit score is paying bills on time. (It accounts for 35% of the score.) So, it certainly doesn’t hurt your credit score to pay them automatically, and it will probably boost it over time. By the way, it doesn’t matter whether the bills are paid on time by check, automatic withdrawals from your checking account, or automatic bill paying through your credit card. Of course, the key to the latter method is paying the tab on your card on time.

The credit card companies are replicating the mistake of the recording industry. They are going after customers, changing the rules of the game without notice, closing accounts, raising interest rates, hiking fees, and cutting lines of credit. In trying to lower the overall risk of their credit card portfolios it looks like red flags were raised when customers shifted from shopping at premium stores to discount emporiums. The data mining into our habits and behavior is breathtaking–and disturbing.

Still, the industry would go out of business if it denied credit cards or hiked rates on everyone who on a monthly basis got a haircut, went to a liquor store, picked up household items at a bargain basement store and groceries at discount warehouse. What they’re really looking for is abrupt changes in spending that might signal financial trouble. In a sense, with regular bill pay you are steadfast and you get the rewards you want. (There is another whole question about rewarding credit card companies for their behavior, but that is for another forum.) For more on credit card company behavior and your spending habits check out this terrific interview my colleague Tess Vigeland had with Charles Duhigg.

If you’re responsible with money it’s probably best to use a credit card with an automatic payment instead of a checking account. The reason is that so long as you are well under your credit limit you don’t need to worry about overdraft fees and the like from the bank–and those fees are costly.

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