How Utility Bills Can Impact Your Credit Score
Paying your utility bill is important for more than just keeping the lights on, and a disconnected phone is not the only consequence of failing to pay your cell phone bill. Though many of the accounts you pay on a monthly basis, such as your cable bill, energy bill and cell phone bill, do not factor into your credit score, they can if you fall significantly behind on payments. If any of your utility bill payments are sent to collections, it can have a serious negative impact on your credit score.
When Utility Bills Do
and Do Not Impact Your Credit Score
Generally speaking, companies that provide a service do not
report payments to credit bureaus. However, should you fall significantly
behind on payments — like three to four months behind — not only will the
service provider disconnect you, but also it will likely send your account to
collections. When an account goes to collections, it does reflect on your
credit report, and not in a good way.
Unfortunately, the inverse is not true. You may have been a
loyal subscriber to your cable network for 10 years and never missed a payment.
During that entire 10-year span, chances are good that your provider did not
once report to the credit bureaus regarding your outstanding bill-pay habits.
This is because, unlike with a loan or credit card, paying for utilities does
not involve borrowing money and paying it back.
There Are Exceptions
to This Rule
Other than your accounts getting sent to collections, there
are ways your utility payments can influence your credit score, and in a
positive way. FICO, the most widely used credit scoring model, offers
another lesser-known model called the FICO XD 2. The FICO XD 2, which was
introduced in early 2018, takes into account non-traditional payment data, such
as those related to utility payments and medical bills. The purpose of this
newer model is to help individuals who have yet to establish credit through
traditional means do so via their typical monthly expenses. Some factors FICO
XD 2 takes into consideration include utility bills, rent payments, cell phone
bills and medical bills.
Consumers can also choose to have their credit reports reflect their utility payments thanks to Experian Boost. Experian, one of the three major credit bureaus, can now access consumers’ utility, cable and telecom bill payment histories with permission. When a person signs up for this program, his or her credit score will see an instant boost. Whether or not the positive trend will continue all depends on the timeliness of future payments.
Experian Boost Tracks
Only Positive Payment History
Though Experian Boost will not do you any good if you don’t
make bill payments on time, late payments won’t hurt you either. Experian Boost
does not keep track of those. It will, however, remove an account if it notices
that you have not made a payment in more than three months. The removal of
those accounts is just as detrimental to your score as if you were to close a
credit account. That said, if you plan to use Experian Boost, only do so if you
know you can keep up with monthly payments.
For those consumers who do make on-time payments, Experian
Boost can help in two ways:
• Experian Boost can help boost a thin credit
profile and make a person "scorable” once it factors in new payment
• For consumers whose payment history is weak or
who don’t have a long credit history, new payment information, regardless of
from where it comes, can help to improve scores.
It is important to bear in mind that Experian is the only
credit reporting agency with a system that factors in untraditional data. As a
result, while Experian Boost can raise your credit score with Experian, it will
not make a difference to your Transunion or Equifax scores, which carry as much
or almost as much weight as your Experian score.
Building Your Score
With a Secured Credit Card
There is a way to boost your credit scores across all three
bureaus through bill payment, and that is by paying your utility bills with a
secured credit card. To open a secured credit card, you would need to put money
down as a deposit. Typically, your credit limit would be the amount of the
deposit, but some credit card companies may double or even triple the amount of
your deposit, depending on your credit score. Once you start using the card to
make payments towards your cell phone, electric, etc., the company will report
payments to the credit bureaus. So long as you pay off your balance each time
you use your card, you should see a notable increase in your score fairly
The bottom line is that the credit bureaus really only take notice of your utility bill pay habits in one of two situations: if an account goes into collections or if you grant them access through Experian Boost, FICO XD 2 or a secured credit card. Other than that, when and how you choose to pay your bills makes no difference to the bureaus. If you’re struggling to pay your bills to the point where collections is possible, consider using a personal loan to catch up.