Does Paying for Internet Build Credit?

A credit score is a numerical representation of an individual’s creditworthiness, indicating the likelihood of repaying borrowed money. These scores are calculated based on information within credit reports, which compile a person’s financial history. A robust credit history and higher credit score can lead to more favorable terms for loans, credit cards, and even housing. Understanding how credit is established and maintained is important for navigating personal finance effectively.

How Credit History is Built

Credit history is built through responsible management of financial accounts. Lenders report account information to the three major credit bureaus: Experian, Equifax, and TransUnion. This data includes account type, opening date, credit limits, current balances, and payment history. On-time payments are the most significant factor influencing a credit score, accounting for approximately 35% of a FICO Score.

Credit utilization, the amount of credit used relative to total available credit, is another factor, making up about 30% of a FICO Score. Maintaining a low credit utilization ratio (ideally below 30%) demonstrates responsible credit management. The length of credit history also contributes, reflecting how long accounts have been open and managed. Older accounts with positive payment histories contribute positively to a credit score.

Credit mix (variety of accounts) and new credit applications also play a role, each accounting for about 10% of a FICO Score. Managing a combination of revolving accounts (like credit cards) and installment loans (such as mortgages or auto loans) can demonstrate a diverse financial background. Opening too many new accounts in a short period can temporarily lower a credit score due to multiple hard inquiries.

Why Internet Bills Do Not Build Credit

Internet bills, like most utility services (electricity, water, gas), do not contribute positively to a credit history. Internet service providers (ISPs) and utility companies do not report on-time payments to major credit bureaus. These services are considered non-traditional accounts, unlike loans or credit cards.

Their primary business model does not involve extending credit that would necessitate reporting payment behavior to credit bureaus. They are primarily service providers, not lenders. Even if payments are made on time, this positive financial behavior is not reflected in an individual’s credit report. While paying these bills is a financial responsibility, it does not directly aid in establishing or improving a credit score.

The Consumer Financial Protection Bureau notes most utility companies do not report payment regularity. While some specialty consumer reporting agencies share information among telecommunications and utility companies, these do not affect scores calculated by major credit bureaus. Therefore, relying solely on internet or utility payments to build credit would not yield the desired results.

When Internet Bills Can Affect Credit Negatively

While internet bills do not help build positive credit, they can damage it if left unpaid. If an internet bill becomes past due, the service provider may send the account to a collection agency. Once an account is placed with a collection agency, this negative mark can be reported to the three major credit bureaus.

A collection account on a credit report indicates a defaulted debt and can significantly lower a credit score. This negative information 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. The impact on a credit score can be significant, especially if the individual has an otherwise good credit record. Even if the debt is later paid, the collection account may still remain on the credit report for the full seven-year period, although its impact on the score may lessen if it is marked as paid.

Strategies for Building Credit

Since direct internet bill payments do not build credit, individuals can pursue several strategies to build or improve their credit history. Secured credit cards are an option, especially for those with limited or no credit history. These cards require a refundable security deposit, which often serves as the credit limit, starting from a few hundred dollars. Payments made on secured credit cards are reported to the major credit bureaus, allowing individuals to establish a positive payment history.

Credit-builder loans offer another structured way to build credit. Unlike traditional loans where funds are received upfront, with a credit-builder loan, the lender holds the loan amount in a locked account while the borrower makes regular payments over a set period, 6 to 24 months. These on-time payments are reported to the credit bureaus, and once the loan is fully repaid, the borrower receives the money.

Becoming an authorized user on a trusted individual’s credit card can also help build credit. As an authorized user, the account’s payment history and credit limit may appear on one’s credit report, potentially benefiting the score if the primary cardholder manages the account responsibly. If the primary user makes late payments or carries high balances, it could negatively affect the authorized user’s credit.

Some third-party services allow individuals to report rent or utility payments to credit bureaus, which can then be included in some credit scoring models like Experian Boost. While these services can help, they often come with fees and may only impact scores from specific credit bureaus. These are not direct reports from the utility providers themselves, but rather through an intermediary service.