Does Paying A Phone Bill Build Credit?

If you have bad credit, you know that trying to repair your credit score can seem like walking in quicksand. How can you prove your creditworthiness, you might ask, if you can’t get approved for a loan?

You might wonder if paying bills like your phone bill can build credit. After all, it shows your commitment to paying on a monthly contract over time. Let’s take a look at whether paying a phone bill, or any other monthly utility obligation, can move the needle on upping your credit score.

At A Glance: Does Your Phone Bill Affect Your Credit Score?

Typically, phone companies and other utility companies don’t report payments to the major credit bureaus unless your account goes to a collection agency. You can use phone bills and phone purchases in different ways to build your credit score, though. Common methods include using a credit card to pay your cell phone bill and using a personal loan to buy a phone, although you should be careful not to take on too much debt unless you’re sure you can pay it back on time. Making on-time credit card and personal loan payments should improve your credit score over time.

There is another way, however, that paying your phone bill can build your credit score. Through certain credit monitoring services, you can manually add up to 24 months of payment history to your report. So, if you have an immaculate payment history with your phone bill over that length of time and can add it to your credit report, you may be able to improve your score.

Why Utility Payments Don’t Help Your Credit Score

Since they are not loans, paying utility bills does not build your credit score. Utility companies usually shy away from reporting accounts and payment history to the major credit bureaus – Experian™, TransUnion^® and Equifax^®.  Even though they’ll charge you a fee if you’re a few days late on your payment, for example, your tardiness won’t be reflected on your credit score.

However, if you fall behind on your payment for 30 days or more, your account may be transferred to a collection agency. A utility bill sent to collections will impact your credit score. Like any other delinquent account, the debt can stay on your credit report for up to 7 years, even if you’ve since paid the bill.

If you apply for a loan within this period, lenders would know that you defaulted on paying your utilities when they access your credit report. This would send red flags to lenders, making it difficult for you to obtain a loan at favorable rates.

How Late Payments On Utility Bills Can Harm Your Credit

While it’s good financial discipline to pay all your monthly bills on time, late payments typically only contribute to a bad credit score when it’s for a loan account, such as a mortgage or credit card. Late payments for water, electricity and other utilities are not directly reported to the credit agencies. If you get so far behind on a utility bill that it goes to a collection agency, however, this will have a negative impact on your credit score.

How To Use Phone Service To Improve Your Credit Report

We know that utility providers do not report your payment activity to the credit bureaus, but you can sign up for a third-party service that will report your payment activity for you, for a small fee.  A company such as Experian Boost reports payments on your cellphone account and other utility bills to the credit bureaus. On-time payments can then be noted and boost your credit score.

You can also boost your overall credit history by paying your monthly cellphone bill with a credit card or funds from a personal loan — and then making your monthly credit card and/or loan payment on time. This is also a great way to build up rewards points on your credit card. Be mindful of your overall budget, though, and make sure you can make these payments on time. Otherwise, your credit score will continue to slip.

Alternative Data: What It Is And How To Include It In Credit Reports

For lenders, alternative data is any financial information about you that is not reported to the major credit bureaus but might still be relevant to your creditworthiness. This can be your rent and utility payments, child care costs, extra income you receive from a side hustle, your online shopping habits—perhaps even your social media activity. Only with your permission, lenders can assess the data in your financial account statements to get a fuller picture of your financial activities over a certain period of time.

What Bills Will Improve Your Credit Score?

Paying back lenders on your mortgage, student loan, personal loan, car loan and credit cards is the most important thing you can do to raise your credit score. FICO^® and VantageScore^®, which are two of the main credit card scoring models, both view payment history as the most influential factor when determining a person’s credit score. For lenders, a person’s ability to keep up with their installment loan payments indicates that they are capable of taking out another loan and paying it back.

The Bottom Line: Loans And Credit Cards Build Credit Better Than Phone Bills

The best way to build good credit — and make it more likely you’ll get approval for a new loan — is to keep up your payments on the loans you already have, such as a mortgage, student loan or credit card. Keeping up on your monthly payments to utility providers like your cellphone company, while still very important to your financial standing, does not boost your credit score on its own.

To keep track of all your monthly payments and keep an eye on your credit score, download the Rocket Money℠ app today.