That's not obvious to me. Just because someone can pay more than the minimum balance, doesn't mean that they do. I think that's one case where autopay could cause someone to run up unnecessary interest. A person may know that they can't pay the full bill, so they set up autopay to make sure they at least pay the minimum.
However, someone poor at managing their finances might have gone in to pay more than the minimum if autopay wasn't available. But since it's set to autopay, they might not bother to make any additional payments. This isn't necessarily caused by autopay, but you could argue that if autopay didn't exist, some fraction of people who are currently paying the minimum balance, might have paid down balances more quickly.
I don't hav any particular evidence to support this, but it seems plausible enough to me not to be dismissed out of hand.
Manually paying would have caught the issue before it snowballed. Setting up autopay for the full statement balance in the first place would have entirely prevented the issue, as the extra money went entirely to luxuries that they thought they could afford.
Which isn’t really an autopay issue, so much as an ‘enabled by autopay’ issue.
All the people I talked to seemed like good people, but the lack of basic financial knowledge was shocking to me. Not as shocking as the payday loan industry, though. But that's a different topic. (If you're in the payday loan industry, quit now. Start dealing meth, you'll be doing the world a favor.)
Now, I have a text message/app notification come through immediately whenever there is a charge > $0.00 (chase at least supports this). Reviewing immediately, and then knowing that all charges are real at the end of the month, has been a real pleasant change in that workflow.
Get a notification that your card was used at a gas station when you're in bed at 11pm and last filled up 5 days ago? Probably not legitimate. Plus, if you trust your CC company, it saves you from having to review your charges at statement close.
Autopaying the full amount would work 95% of the time, except when I put something like a big holiday on my card and autopay pays the entire balance and the payment either fails because I forgot to have sufficient funds in my debit/checking account, or leaves me with very little whilst I wait for the money that was going to come in to pay for it.
A pending fraudulent charge on my credit card isn't a problem. Cash missing from my bank account until the investigation is complete CAN be a problem.
I like to review stuff and typically don't keep a large cash balance. An expensive month could 5x or more my spend; maybe I just paid for an overseas vacation, my home owners and auto insurance is hitting, and whatever all in the same month. Want to make sure everything is in place before kicking off the payments.
Remember that credit scores try to score your credit worthiness: are you capable of paying off a balance. How can that be measured if you never have a balance? Instead it simply appears that you have a lot of available credit without ever using it.
You have a balance. And then you let Autopay pay it off in full by the due date, which is after the balance appears on your statement and after the balance is reported to credit bureaus. You still don't carry a balance.
What you are describing (having zero balance reported) is called cycling the credit limit. This is indeed a dangerous behavior that can not only affect your credit score but also lead to account closures. Don't do it.
Perhaps, but I doubt it.
> You have a balance. And then you let Autopay pay it off in full by the due date, which is after the balance appears on your statement and after the balance is reported to credit bureaus. You still don't carry a balance.
I don't use Autopay. I pay my card off (usually in full every month) when I review the online statement. If I review my statement early and I know that I have upcoming charges then I'll pre-pay to avoid interest charges. Some months end up with effectively a zero balance for the month.
> What you are describing (having zero balance reported) is called cycling the credit limit.
No, I am absolutely not. Cycling your credit is where you charge close to your credit limit, then pay it off, and repeat that several times in a single cycle. Cycling your credit once might mean that you had some big expenses. Doing it repeatedly (eg several months in a row) means that something about you is suspicious and warrants an account review. Maybe you lied about your income, or need a credit limit increase, or you're gaming some rewards system, or you're using a personal account for business, or something that's even more unusual.
Your statement doesn't get generated until the billing period closes. For all intents and purposes, the one number that gets reported to the credit bureau is the balance shown on that statement, which is a fixed value for the whole month. Even if you pay off the entire balance as soon as the statement gets generated, you can see a zero number for most days during that month, but credit bureaus still see the positive number on your statement.
I find it funny that the example person with big credit lines, which are unused, should care about a slightly better credit score. The financialization of everything coaxes people to care about numbers that don't greatly matter to their situation - they already have the credit line.
Having credit lines in credit cards is one thing. But having that credit line doesn't mean that doesn't mean they "already have the credit line". A good credit score will save you tens- or hundreds- of thousands of dollars with reduced mortgage rates. So it's important to have good credit hygiene with cards to build that score.
Yes, the financialization of everything perverts incentives. Unfortunately that's the world we live in. I certainly don't believe that someone's home should be an investment vehicle. Nonetheless, it most certainly is one right now.
This involves money and profit. Privacy policies involve money and profit.
In both cases, there are clear financial incentives to make things confusing to the benefit of the financial institution.
Because credit cards got so bad, they added "nutrition labels" by law. These are the required disclosures that take about APRs, penalties, grace periods, fees and minimum finance charges, etc
Rewards and benefits on debit cards are low or nonexistent due to regulatory pressure in USA to have lower network processing fees than credit cards.
Europe has lower card network fees than USA, so there are fewer rewards cards available.
> Borrowers who use autopay pay off between 8% and 17% less of their monthly credit-card balances compared with customers who make manual payments, according to the study... When credit-card customers sign up for autopay, they typically have three options for monthly payments: the required minimum, the statement balance in full or a custom amount. Most people who enroll in autopay choose either the minimum payment or full balance, said Wang.
In other words, if you're already in the financial position to set it to full balance, then you're doing great, and autopay isn't making you worse at anything.
While if you set it to minimum payment, your financial position is obviously not great, and you're paying more in interest. But there's no evidence autopay is the cause here. Your lack of money is the cause.
If you're somewhere in the middle where you can pay more than the minimum but not the full balance, obviously you're not using autopay, because the amount probably changes each month based on what's left over from your other expenses.
The idea that autopay is the cause of not paying your bills is absurd. Causality runs in the other direction -- people who are already among the worst-off and can only afford the minimum, turn on autopay. (As well as those who can afford the full balance, of course.)