Should I Pay Bills With a Credit Card or Checking Account?

Why Should I Pay Bills With a Credit Card?

Paying your monthly bills with a credit card could make sense for you if:

You Want to Get the Most Out Of Your Credit Card's Perks

Putting a monthly bill on your credit card could help you maximize rewards and perks. For example, you could earn points or miles toward travel to help pay for your next trip, or get cash back on your spending.

Another perk: purchase protection. Some credit cards will reimburse you for a lost, stolen or damaged cellphone if you pay your cellphone bill with the card, for example.

You Want to Earn a Welcome Bonus

Many credit cards offer a welcome bonus for new cardholders who spend a certain amount on the card within the first few months. This spending requirement can be a few thousand dollars or more. If you don't normally spend that much on a credit card, paying your bills with a card that offers an intro bonus for a few months could help you earn the bonus.

You Want to Ensure On-Time Payments

Missing a payment on a monthly bill could negatively affect your credit score. Payment history is the single biggest factor in your credit score, and a late payment that is reported to credit bureaus will stay on your credit report for seven years. Service providers may also charge fees for late payments or, in some cases, even cancel your service.

Scheduling automatic payments from your checking account can keep you from missing a payment due date. However, if you don't have enough cash in your account when automatic payment is withdrawn, your bank might charge an overdraft or nonsufficient funds fee or other penalty. Unpaid fees or penalties can hurt your credit score if the bank sends your account to collections.

Using a credit card for automatic payments helps ensure that your payments go through even if your checking account balance is in the single digits. Just be sure to pay the balance when you get your credit card bill.

You Want to Keep Your Credit Card Active

Longevity of your credit history is a factor in your credit score, so keeping old credit card accounts open can positively affect your credit. If enough time goes by without using the card, though, the issuer might close the account or decrease your credit limit.

Closed accounts can hurt your credit score by shortening your credit history and decreasing your available credit. A lower credit limit can damage your score by increasing your credit utilization ratio, or the percentage of available credit you're currently using. Paying even one monthly bill with the credit card will keep your card active and your account open, even if you don't use the card for anything else.

You Want to Build a Credit History

Paying bills with a checking account doesn't affect your credit score because bank transactions aren't reported to credit bureaus the way credit card payments are. If you're new to credit, putting one or more monthly bills on a credit card can help build a positive credit history; just make your credit card payments on time.

Which Bills Can I Pay With a Credit Card?

The following providers typically allow you to pay by credit card. They may charge a service fee for doing so—generally a percentage of your payment—so you'll need to weigh whether the extra cost is worth it.

• Cable and internet companies
• Utility companies
• Cellphone providers
• Subscription services such as streaming services or gym memberships
• Auto and home insurance companies
• Health insurance providers
• IRS and state tax collectors

In general, you can't pay the following providers with a credit card:

• Landlords
• Mortgage lenders
• Auto lenders
• Student loan providers

Some providers accept credit card payments via third-party companies, such as Plastiq. However, Plastiq charges a minimum 2.9% fee per transaction, which can quickly add up for large payments such as rent.

How Paying Bills With a Credit Card Impacts Your Credit Score

Paying monthly bills with a credit card can affect your credit score positively or negatively, depending on how you handle it. Using a credit card could hurt your credit score if:

• You run up a balance and don't pay it off. If you can only afford to make minimum payments on your credit card, you'll start accruing interest on the balance. This can quickly add up as more monthly bills are paid with the card.
• Your credit utilization ratio is too high. Your credit utilization ratio is calculated based on your statement balance and is the second-biggest factor in your credit score. If you charge $3,000 in rent on a card with a $6,000 limit, you'll have a 50% credit utilization ratio. You can keep the ratio low by paying your bill before the statement date.

Paying bills with a credit card might help your credit score if:

• It helps you pay on time. If you struggle to remember payment due dates, setting up automatic payments with a credit card can help prevent missed payments without worrying about insufficient funds in your checking account.
• It keeps a long-standing credit account open. Putting a monthly bill on a credit card that you don't normally use keeps the account open. This can help your credit score by increasing the average age of your credit accounts.
• You're new to credit. Fresh out of college? If your only monthly credit payment is a student loan, getting a credit card and using it for a few monthly bills may help your credit score if you make the payments in full and on time. Having both revolving credit (like credit cards) and installment credit (like loans) can boost your credit score by diversifying your credit mix.

When Should I Use a Checking Account to Pay My Bills?

You'll have to use a checking account to pay bills if your provider doesn't accept credit cards. You should also use your checking account to pay bills in the following situations:

• Your provider charges a fee for paying by credit card. In most cases, you'll pay more in credit card convenience fees than you'll gain in card rewards and perks for using a credit card. However, this isn't always the case, so carefully check your card's terms and conditions and do the calculations to see if rewards earned outweigh any convenience fees you'll pay.
• You might have trouble paying off a high credit card balance. Depending on which monthly bills go on your credit card, it can be easy to rack up a high balance that might be difficult to pay down. For example, it may make sense to put smaller bills like streaming services and your gym membership on your credit card, but not larger payments like your health insurance premiums or rent.
• You can save money by paying cash. Some providers offer a discount for paying with a checking account because they don't have to pay for credit card processing. Contact your service provider to see if they offer any incentives for paying in cash.

The Bottom Line

Whether or not to pay monthly bills with a credit card depends on many factors, including whether your provider allows it, whether there are fees and whether you'll earn any credit card rewards or perks. You'll typically need a good to excellent credit score to get a rewards credit card. Before applying for one, check your credit report and credit score to make sure they're in good shape.

While you're at it, consider signing up for Experian Boost^®ø. This free service uses your on-time utilities, streaming service, cellphone and rent payments to help boost your credit score, even when you pay from your checking account.