Credit cards offer a convenient way to make purchases, including goods and services you can pay for on the Internet. One way to use credit cards online is to pay bills with them, including utility bills, traffic tickets, bank fees and even rent. Paying bills online with a credit card can have an impact on your credit score, both in a positive and negative way.
Available Credit
One way that paying your bills online with a credit card can hurt your credit score is by reducing your available credit. Credit rating agencies look at how much you owe on your credit card accounts as a percentage of your credit limits. When you charge bills to a credit card, you reduce your available credit balance. Avoid this damage to your credit score by simply paying off your credit card balance in full each month. However, if you carry a balance over time or make minimum payments on your cards, you'll see your available credit shrink each month and your credit score fall as a result.
Paying On Time
Paying bills late can hurt your credit score as the companies you owe money to report late or missed payments on your credit report. This is where paying your bills online with a credit card can help your credit score. Automatic payments, email reminders and instant transfers all make it easier to track your bills online and pay them before missing the due date. A history of on-time payments will build up your credit and improve your credit score. It may also cause your credit card company to extend a higher credit limit, which will increase your available credit and boost your credit score even higher.
Inquiries
Another way that online credit card payments can hurt your credit score is when you first sign up for an account and the company you plan to pay makes an inquiry into your credit history. These inquiries are necessary for lenders and utility companies to ensure that you have the means to pay your bills, but they also reduce your credit score slightly for a short time. Opening several new accounts, which might happen when you move to a new city, will have a visible impact on your credit score. Signing up for new credit cards specifically to use for online bill payments will also create an inquiry that will hurt your score, albeit for a short time.
Responsible Spending
As with most types of credit, your level of responsibility will determine what impact your use of it has on your credit score. If you allow automatic online billing to drive up your credit card balance, or use credit cards to pay bills you can't afford, you'll see your credit score suffer as a result. On the other hand, using credit cards to make sure you pay your bills on time will build a good credit history and make it easier for you to borrow in the future, all while saving you time. Read your credit card agreements before making charges and also read the bill payment agreement from each company you plan to pay online; payment agreements will tell you how long it takes to process a transaction and if there are any fees associated with the service.
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