Is It Better To Pay Bills On Time Or Early
Payment history accounts for 35% of your FICO® Score. Getting in the habit of paying bills early means knowing that your payments will arrive on time each month, a fact that boosts your credit score. And because we don’t know what tomorrow will bring, building a healthy credit score is a smart move.
How Do Phone & Internet Bills Affect Your Credit Score
While most people may be aware that taking out a personal loan or credit card can affect your , it is less widely known that telecommunications services such as mobile phones and broadband contracts can also have an impact.
When you apply for a post-paid mobile phone contract, you are applying for credit and the telco can do a credit check on you. This will show up on your credit report as a and can impact your credit score.
Remember that credit providers look at multiple enquiries in a short period of time as an indication of increased risk, so only apply for credit if and when you need it. Its also a good idea to monitor your credit score and credit report to make sure youre in good shape before making any applications.
If you do have a mobile phone contract, it is essential to pay your bills on time to maintain your credit score. An unpaid bill can be listed on your credit report as a default if your payment of $150 or more is overdue by 60 days or more and this record will have a negative impact on your credit score.
In todays mobile saturated society, a less common way that your phone bills may have a negative impact on your credit score is landlines in share houses.
Consider a share house tenant who takes out a landline contract, or probably more common these days a broadband contract.
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How Can Cell Phone Bills Help Build Credit
“Please believe meI really am financially responsible!” If your credit report is blank, that’s what you may want to say to lenders and other businesses. Yet without enough proof that you’re capable and trustworthy, their response may be, “Thanks, but we’ll pass.” Or you’ll be accepted, but with cost-prohibitive terms.
So how can you jump-start the process of building credit if you don’t have a lot of experience borrowing and repaying the money? Good news: If you’re among the 95 percent of people in the U.S. who has a cell phone, simply paying that bill may now help you add to your credit history. Cell phone bills can help build credit because you can now include them on your credit report. Read on to find out more.
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How This Affects Your Credit Score
If you fall behind in paying your phone bill, this will put your account into arrears. If youre in arrears for more than 60 days and owe $150 or more, this will be listed as a default. Defaults drag down your credit score and hang around on your credit report for five years.
Not only can this prevent you from applying for other phone plans down the track, it can also impact your ability to be approved for a home loan or a credit card. This means your phone bill woes can be a slippery slope to bigger finance issues further down the track.
Almost everyone who falls behind on their phone plan starts off with the best of intentions to pay it back but how can you prevent it from happening in the first place? Here are a few suggestions to help you out .
Does Paying A Phone Bill Build Credit
Faithfully paying the phone company, month in and month out, doesn’t help you build credit because phone companies dont typically report to credit bureaus. Even financing your phone or leasing it via a phone contract wont build credit, since the companies dont report the activity.
You may see a small, temporary dip in your credit score, however, if the phone provider checks your credit before allowing you on a phone plan.
There are some workarounds, however:
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How Long Does It Take For An Unpaid Phone Bill To Show Up On Your Credit Report
A late phone bill might hurt your credit score, even if you dont consider it a debt. It, like most other debts, will not remain on your credit report indefinitely. Your ate payment, on the other hand, will appear on your credit report for seven years. After then, it will be removed from your credit report and will have no effect on your credit score.
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Payments Not Always Reported To Credit Bureaus
Other types of payments may or may not be reported to the credit bureaus. That includes regular payments you make for rent, insurance or services such as utilities, cellphones, internet or cable.
For most of these companies, the default is not to report your payments to credit bureaus. However, you can invest in a service such as Build Itavailable through ExtraCreditthat helps ensure your on-time payments for utilities and rent can be added to your report and potentially positively impact your credit score.
Build It works by adding new tradelines for these accounts on your credit reports. Then, as you pay on-time each month, those payments are reported. This can be a good way to demonstrate your positive payment history even if you dont have a lot of credit accounts.
Myth #: Closing A Credit Card Account Will Affect Your Credit Score
This is possible in a couple ways. First, closing a credit card affects . Credit utilization is the percent of total available credit that youre currently using. When you close a credit card, the available credit drops, which means your percent of available credit used increases. Higher credit utilization levels can negatively affect your credit score. To limit this impact, either close lower limit cards and keep higher limit cards or request an increased limit on the remaining cards to offset the reduced credit thats available when a card is closed. Second, if you close a card that youve had for awhile, it could negatively affect credit history over time. The reason for this is that the closed card would stay on your credit report for several years after closing it. Eventually it drops off, leaving cards that you havent had as long. At that point, your credit history would appear shorter than is actually the case. People with shorter credit histories are generally considered higher risk borrowers, which could cause the credit score to fall a little. To limit this impact, try to keep your oldest cards open while closing newer cards instead.
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Tips For Building Your Credit
Paying your bills on time is one of the best ways to build credit for the future. But if you have a thin credit fileif you have a shorter credit historyor you have bad credit from past mistakes, there are other options. Here are a few tips for building your credit:
- Sign up for tools like Build It. Get the positive payment history youre achieving with utility bills and rent added to your credit profile.
- Apply for a . These are available for those with poor or no credit. Theyre often secured by a savings account. Once you pay off the loan, you get access to the savings account and the money in it.
- Apply for a secure credit card. These require a deposit to secure your original line of credit, but many secure credit card accounts are reported to all three credit bureaus. Thats because theyre specifically designed to help you build or rebuild credit.
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Financing A Smartphone With Apple
If you want to finance an iPhone or any apple product with Apple, Apple will open a credit card through which you can finance your phone. The Apple Card is reported to the credit reporting bureaus. So, making payments on an iPhone will help you build credit. If you miss any payments, you could cause significant damage to your credit. This is so because the status of your Apple Card is reported to the three major credit reporting bureaus. As such, your payment history will affect your credit score.
The Five Pieces Of Your Credit Score
Your credit score is based on the following five factors:
Ultimately, the best way to help improve your credit score is to use loans and credit cards responsibly and make prompt payments. The more your credit history shows that you can responsibly handle credit, the more willing lenders will be to offer you credit at a competitive rate.
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Can Paying Your Phone Build Credit
The average price of monthly cell phone service in the United States was $127.37 in 2020. Yet most wireless service providers do not report account activity to the major credit bureaus. So, no matter how much you pay for cell phone service, it typically will not help you establish a positive credit history.
There is a partial workaround if youâre looking for a way to get credit for your positive cell phone payment history. Experian offers a free service called Experian Boost that can help you build credit in a nontraditional way.
With Experian Boost, you can give the credit bureau permission to access your bank and credit card accounts. The system will search for certain payments for subscription services and utility payments â including those made to cell phone providers. If you have eligible cell phone bills, the system will add them to your Experian credit report.
Once a positive cell phone account makes its way onto your Experian report, it does have the potential to improve certain Experian-based credit scores. According to Experian, the average Boost user with a thin credit file saw a 19 point increase from using the service.
If you want to learn more about how bills affect your credit, read our guides on âdoes paying bills build credit,â and âdoes paying utilities build credit.â
Check Your Credit Report For Mistakes
Lenders look at your credit report when you apply for a loan, credit card, mortgage or any other type of credit account to see what you already owe, how well you’re keeping up with your repayments and whether you can afford to borrow more.
Checking your credit report can help you to improve your credit score because you can check how accurate it is and that it reflects your circumstances.
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If You Miss Your Repayments It Could Harm Your Credit Score
Going forward, if your application for the phone plan is accepted, then this will be listed as an active credit account on your report. If you default on your phone plan repayments, then this will also appear on your credit report. Initially, this will also harm your credit score. Furthermore, the default will remain on your credit report for up to five years, and any time you apply for credit, the company youre applying with will see the default.
Set The Record Straight
Check your credit report regularly to make sure that all the information it contains is correct. If you notice any errors, you can contact the relevant lender and ask for them to be corrected – you will be expected to provide proof that a mistake has been made.
If you have a good reason for any credit problems, for example if you were ill and couldn’t make your payments on time as a result, you can add something called a Notice of Correction to your account.
Potential lenders will be able to see this explanation – again, be prepared to provide proof.
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What’s Driving The Change
This move is the latest in a series of efforts from credit report agencies to increase scores as lenders look for new ways to assess risk levels.
Last year, Experian, Equifax and TransUnion announced a plan to overhaul how negative information is handled on credit reports. They began stripping tax-lien and civil-judgement data and removing collection accounts, which raised scores in some cases by more than 40 points.
In October, FICO announced that it will launch a new scoring system, the UltraFICO score, that will account for your checking and saving account information.
“I like this even better than UltraFICO,” says Rossman. “With UltraFICO, access to your banking history and balance seems like it could be a slippery slope. But with Experian Boost, it’s all about showing you’ve paid recurring bills on time, which is a natural fit for building solid credit.”
The Importance Of Paying On Time
Making on-time payments that are reported to your credit history is great. That means your credit score is getting a positive benefit from those payments. But paying other bills on-time keeps you from falling behind and into collections. That has a potential positive benefit for your credit history too.
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A Note On Prepaid Phone Plans
If you have a prepaid phone plan, you can miss a payment without risking damage to your credit score. With prepaid accounts, you only have access to the service if you pay in advance. This way, the service provider is protected from clients who fail to pay.
If you neglect to pay your prepaid phone bill, the mobile service provider will suspend your service. The mobile service provider wonât report your failure to pay to credit bureaus because it is not a debt. You simply lose access to the service.
How To Prevent It From Happening To You
Your credit score can impact several areas of your life, including potential job offers, insurance rates, credit card rates, mortgage rates and rate on other loans.
So if you want to get your financial life in order, its important to keep up with your credit score and the factors that impact it. Even if youre a little nervous to check, you have to know where you stand financially in order to get on the right track and stay on the right track. Plus, there could be errors on your report that are negatively impacting your score without you realizing it.
Read more: How to fix errors on a credit report
So here are some things to know about keeping up with your credit score and credit report and how to get on the right track:
All Americans are entitled to one free credit report from each of the three major credit reporting agencies upon request every 12 months. Here are several ways you can request yours.
Once you get an idea of where you stand, you can start taking steps to improve your score. Heres a guide on how to get started.
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Myth #: Paying My Utilities Bills On Time Will Improve My Credit
Unfortunately, this isnt the case. Utilities and most cable/Internet providers do not report payment histories to the credit bureaus unless payments are in default. If payments are up to date, they will not influence your credit score. If payments get behind or go to collections, they can be reported and will have a negative affect on the credit score. One exception to this appears to be Rogers Cable, which some have said are reporting to the bureaus regularly. Cell phone companies also report payment histories to the credit bureaus, so keeping your cell phone payments current can help to improve your credit score.
Why Not Just Use A Credit Card
Thereâs nothing wrong with using a credit card to buy a cell phone if you have the funds to pay off your purchase right away. In fact, this approach could earn you extra rewards or cashback. But if you need to finance the cost of a cell phone over time, credit cards tend to be a poor choice.
The average interest rate on a credit card is 17.13% . If you use a high-rate credit card to finance the cost of a phone, you could wind up paying much more for your purchase over time.
If you have a 0% APR on a new credit card account, a credit card could be a more affordable financing option. But thereâs another problem with this approach. Revolving an outstanding balance on your account can increase your , and high credit utilization can damage your credit score even if you make every monthly payment on time.
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