Do Utility Payments Help Your Credit Score?
Learn how utility payments truly affect your credit score, from potential damage to building positive credit history.
Many people wonder how their regular household bills, like utility payments, might affect their credit scores. Understanding this relationship is important for managing personal finances effectively. While the connection may not always be direct, utility payments can indeed play a role in shaping an individual’s credit standing.
Utility Payments and Your Credit Report
Most utility companies do not typically report positive, on-time payment history to the three major credit bureaus: Experian, Equifax, and TransUnion. This is because utility providers are generally not considered traditional lenders, unlike banks or credit card companies. Therefore, your consistent, timely payments for these services usually do not appear on standard credit reports or directly influence credit scoring models like FICO or VantageScore.
However, there is an exception to this general practice. If a utility account becomes severely delinquent, the unpaid debt can be reported to credit bureaus. This negative information becomes visible on your credit report. While good payment behavior may not be automatically rewarded, poor payment behavior can certainly have adverse consequences for your credit.
Negative Impact of Unpaid Utilities
Unpaid utility bills can severely damage an individual’s credit score. If a utility account becomes significantly past due, often after 120 to 180 days, the utility company may deem the debt uncollectible and sell it to a third-party collection agency. Once a debt is in collections, the collection agency will typically report this delinquency to one or all of the major credit bureaus.
A collection account appearing on a credit report can lead to a substantial drop in credit scores, potentially decreasing them by 50 to over 100 points. This negative mark remains on a credit report for up to seven years from the date of the first missed payment that led to the collection. This negative history can make it more difficult to obtain new credit, loans, or even secure housing at favorable terms.
Building Positive Credit with Utilities
While positive utility payment history typically does not automatically appear on credit reports, there are proactive strategies to leverage these payments for credit building. Several third-party services and alternative credit reporting platforms allow consumers to report their on-time utility payments to credit bureaus. These services often include payments for gas, electric, water, internet, mobile phone, and even streaming services.
One prominent example is Experian Boost, a free service that allows users to connect their bank accounts to have eligible on-time utility and other household payments added to their Experian credit file. This can potentially improve FICO Scores based on Experian data by demonstrating a consistent history of responsible payments. However, Experian Boost only affects the Experian credit report and scores derived from it, not those from Equifax or TransUnion.
Other services, such as Self (which now includes LevelCredit), eCredable Lift, and IdentityIQ, offer similar reporting capabilities. These services may report to different bureaus or come with associated fees. They require individuals to opt-in and often involve connecting bank accounts to verify payment history. Utilizing these platforms can be particularly beneficial for those with limited credit history, as it provides an avenue to establish a positive payment record.