To auto-draft or not to auto-draft – Is that the question?
So you don’t like paying bills, but when it comes to rebuilding your credit, it’s a must. For whatever reason, you may be the type of person that has trouble paying bills on time. Even those making incomes that more than cover their bills don’t always pay their bills on time. Personally, I simply forget to pay a bill once in a while. I’ve even paid a bill that wasn’t due until next month – I’m sure I could have used that money elsewhere. This happens to the best of us and is reason enough to consider auto-draft. Simply put, auto-draft helps hold us accountable as responsible, bill paying consumers.
The term auto-draft strikes fear into the hearts of many people. You may have thought to yourself, what if I don’t have the money? What if something else happens and I need to move that money? These are all valid questions. Using auto-draft is a commitment, and can be difficult to make the transition.
Auto-drafting bills are when you set up periodic payments or transfers from your credit card or your bank to pay your bills, tuition, phone, cable, mortgage, utilities or other payments. This payment is deducted on a set day, recurring every month. This removes the need for manual payment of this bill. It will be automatically paid from your account every month on the same day.
In this article, we will look at how auto-drafting of bills works and discuss how it helps you in rebuilding or repairing damaged credit scores.
Think of auto-draft as important. Convenience is a bonus.
Auto-drafting your bills or payments is very useful and it can help rationalize your funds, particularly when you are being unfocused by other events going on in your life. Many people harp on the importance of convenience when using auto-draft for their payments. It certainly is convenient, that is very true. But, from a credit rebuilding perspective, the consistent on time payments that auto-draft results in is a major factor in credit repair.
The reasons why people prefer it while rebuilding their credits are as follows:
- It’s convenient and easy (once you get comfortable with the automatic payment part)
- You don’t have to remember every bill and it’s associated due date
- No visit to separate websites, apps, or locations in order to get everything paid
- No risk of forgetting the due bills
Regularly, major credit card companies offer an automatic payment setup, in which you have to sign up online and agree to let the card company debit your payment on a set date each month.
A few more benefits:
The biggest benefits of auto-drafting is helping you avoid late payments. It means both the late fee and higher penalty interest rate are manageable. If not handled properly, these late payments can end up as negative marks on your credit report, and hurt your credit if they are more than 30 days past due.
Another plus point is that paying your bills automatically saves you time and effort.
Auto–drafting can actually improve your credit score. One of the biggest components to your credit score is your payment history. The research shows that the negative marks on history reports can fade over time when you consistently pay on time. With auto-drafting, you can be on time and avoid delinquency.
It‘s also secure. Your accounts are safe through the encryption techniques that most banks use online to protect customers’ information.
But, auto-drafting can have its downsides:
- While overall we encourage auto-drafting to keep people on track, let’s look at some downside as well:
- You yield some control of your bank accounts to the credit card companies.
- You may make a costly mistake. What if a bill is accidentally withdrawn twice in a month. These types of mistakes are rare to happen and readdressing them might take some time and effort.
- You don’t feel the pain of giving money by hand. When you auto-draft bills, you don’t write a check or look at the bill, so you don’t feel the pain of giving money. It may be psychological, but it plays a role.
- You may become lazy. When you don’t pay your bills by hand, you can get lazy handling your money.
Whether you pay your bills automatically or manually, you still need to be careful about making and keeping a budget. Especially, when you have negative marks on your report and you are in a mode of rebuilding credit. This simple habit will keep your track smooth and allow you to stay out of trouble.
Your partner in debt relief,
Consumer First Financial