Don't Let Paycheck Allotments and Auto-Payments Lower Your Credit

Military members often use paycheck allotments to pay off their recurring expenses. Although this is a simple way to budget your payments automatically and ensure you don’t miss one, there are some personal finance rules to follow to make sure allotments don’t cost you on your credit report.

When Allotments Are Risky

Allotments are risky when payment amounts fluctuate. Too many people get hit with late payments when they set up allotments for something like a credit card. One large purchase can increase your minimum payment, and even though the payment may only go up by 10 dollars, paying too little is considered late and can affect your credit score.

Without your notice, you can get stuck with late notices. Even though you are making payments, the payments aren’t sufficient and end up categorized as late or missed. A number of these in a row can really hurt your credit score.

When Allotments Are Smart

Allotments and auto-payments are a great option for recurring expenses that will always be the same amount. The perfect example of this is a set loan like a car or house payment. You can be sure that these payments will remain constant, and if you ever feel like paying down sooner, you can increase the amount or do a one-time additional payment.

It may be beneficial to set up automatic payments through individual companies for expenses like utilities and phone bills. That way, the correct amount will be taken out every month, no matter what.

Auto-Payment Tips

If you have an auto-payment set up through your bank, check for expiration dates. Some banks will require you to renew an auto-payment once a year or after a certain amount of time has passed. Don’t get stuck with a late fee because an auto-payment expires.

You can also avoid late fees by always ensuring your account has adequate funds for any auto-payments. If an auto-payment fails, you’ll either be stuck paying a late fee or an overdraft fee, so this is something to check regularly.

Remember: there is no guarantee these auto-payments will be on time. Banking glitches happen all the time and the quicker you resolve the problem by keeping an eye on your accounts, the less likely a late payment will be to affect your credit score.

Never completely rely on the system to make correct payments on time. Even though a paycheck allotment is a great tool to keep an expense from slipping your mind, be vigilant of your bank accounts and don’t let a computer glitch ruin your credit.