Does a Phone Bill Affect Your Credit Score?
Learn how phone bills impact your credit score, from potential negative effects to surprising ways they can help your financial standing.
Many people wonder whether their monthly phone bill payments contribute to their credit score. The relationship between phone bills and credit is not always straightforward, and it largely depends on specific circumstances surrounding payment behavior and service type. Understanding these nuances can help consumers manage their financial standing more effectively.
How Regular Phone Bill Payments Are Reported
On-time, regular monthly phone bill payments typically do not appear on credit reports with the three major credit bureaus: Experian, Equifax, and TransUnion. This is because telecommunication companies are not traditional lenders and do not generally report positive payment histories for these service-based accounts. Unlike traditional credit accounts, where every payment is recorded and influences credit scores, consistent, timely phone bill payments do not directly contribute to your credit history or improve your credit score.
When Phone Bills Can Impact Credit Negatively
While on-time payments generally do not affect credit scores, phone bills can significantly impact credit negatively under specific conditions. If a phone bill becomes severely delinquent, the phone company may send the outstanding debt to a third-party collection agency. This collection account will then likely be reported to the major credit bureaus.
An account reported as being in collections can have a significant negative effect on credit scores, as it signals a failure to meet financial obligations. Collection accounts can remain on a credit report for up to seven years from the date of the first missed payment that led to the collection process. This negative mark can reduce a credit score and make it more challenging to obtain new credit, loans, or even housing.
Credit Inquiries for Phone Services
When applying for new phone services, especially postpaid plans that often include device financing, phone companies frequently perform a credit check. This check helps them assess a customer’s creditworthiness before extending service on a contractual basis. The type of credit check performed can vary.
Some providers may conduct a hard inquiry, which involves a detailed review of your credit report and can temporarily cause a slight dip in your credit score, leaving a visible mark. Other providers might use a soft inquiry, which does not affect your credit score and is not visible to other lenders. Prepaid phone plans, where service is paid for in advance, typically do not require a credit check.
Utilizing Phone Bill Data for Credit Building
Despite the general rule that on-time phone payments do not build credit, options are available to leverage this payment history for credit improvement. Services like Experian Boost allow consumers to opt-in and have their on-time utility and telecom payments, including phone bills, reported to Experian. This can potentially increase their FICO Score.
To use such services, individuals typically link their bank accounts, allowing the service to identify and verify consistent, on-time payments over a period, often up to two years. Note that these services primarily affect scores with the specific credit bureau they report to, such as Experian. While TransUnion offers a similar product called eCredable Lift, these tools may not be universally recognized by all lenders who use different credit scoring models or rely on data from other bureaus.