Leverage automation to protect credit health

Date: June 25, 2020

I wrote an article a couple of years ago about the safety, or lack thereof, associated with writing paper checks. A reader posted a comment asking why in the world I was still writing paper checks and not taking advantage of automatic bill-payment technology. I admittedly hadn’t made a complete conversion from paper checks and into the 21st century where I would transfer money electronically from one place to another.

I didn’t object to automated payments and electronic transfers, per se. It just wasn’t how I did it in the past. So, like many others who weren’t children of the Internet era, I was anchored to what I thought of as the normal way of doing things and wasn’t fully ready for a change.

Then the unimaginable happened. A check I mailed to my mortgage company never arrived. Thankfully the lender waived what would have otherwise been a hefty late fee, but that was the metaphorical push over the edge I needed. To protect what I believe to be one of the most important financial metrics, my credit scores, I converted to automated withdrawals and electronic payments for all of my loans, credit cards, and utilities.

I felt the upside to converting outweighed any discomfort I might have letting go of the control of the payment process. For the most part I was right, but the conversion didn’t come without a learning curve.

First and foremost, the pros easily outweighed the cons. The process of automated bill payment is much faster than the postal system, and I save money on stamps and the need to buy replacement checks every few months. I still need some paper checks, but I only write three or four a month now, which is about 25% of what I used to do before converting. (There are still some merchants and service providers who simply want to be paid in paper, and some who still prefer to issue them; all but two of my own clients pay my company with paper checks.)

The downside is that, like U.S. Mail delivery, the electronic transfer doesn’t always find its mark. On multiple occasions, I thought I had successfully transferred a payment or had a payment taken automatically my checking account, only to find that had not actually occurred for one reason or another. (A classic reason for this is forgetting to update payment information connected with a credit or debit card. When you get a new card, even if the card number doesn’t change, you’ll need to update the expiration date and possibly the security code with any automatic payment services that use the card.) So, despite the fact that the process is streamlined, there’s still a need to remain engaged at least until you know the payment has been successfully posted. Some automatic payment services give you the option of receiving a confirmation email when payments are made; this can be a helpful monitoring tool.

You should also be aware that even though electronic payments might seem like they’re immediate, they may not be. It can take 24 to 48 hours for a payment to actually be withdrawn from your account and posted to the merchant. This underscores the need to make your payments a few days before your due dates. Waiting the morning of your due date to make an electronic payment isn’t wise.

The use of automation also lets you set up periodic small withdrawals from your credit cards that would otherwise sit dormant. This restarts the activity clock for each card and makes it much less likely the credit card issuer will close your accounts because of inactivity, which can be problematic for your credit scores. Think of using the strategy for small reoccurring charges, like gym memberships or your water bills.

Finally, one of the early factors that discouraged conversion to automatic bill payment the days of fee-based electronic bill payment seem to have passed us by. There are simply too many merchants that are willing to allow you to make your payments online at no added cost. The benefit to them is a paperless relationship with their customers, which saves them money. It appears that they’re willing to pass that along to you in the form of free online bill pay.