Does Paying Utilities Help Build Credit?

Credit scores play a significant role in an individual’s financial life, influencing access to various financial products and services. A strong credit score can open doors to favorable loan terms, housing opportunities, and even better insurance rates. Many people consider how their regular monthly payments contribute to this score, often wondering about expenses like utility bills. Understanding how different payment types interact with credit reporting systems is important for financial management.

How Utility Payments Are Typically Handled by Credit Bureaus

Utility companies, such as electricity, gas, water, internet, and phone providers, generally do not report positive payment histories to the three major credit bureaus: Experian, Equifax, and TransUnion. Consistently paying utility bills on time usually does not directly help build your credit score. Unlike credit card payments or loan installments, utility payments are typically considered service charges rather than credit accounts. Therefore, timely management of these bills often goes unnoticed by standard credit reporting models.

However, the situation changes if utility accounts become delinquent. If payments are missed (usually after 30 to 90 days), utility companies may send the outstanding debt to a collection agency. Once an account enters collections, it is likely to be reported to the credit bureaus, appearing as a negative mark on an individual’s credit report. These collection accounts can remain on a credit report for up to seven years, even if the debt is eventually paid off. This type of derogatory mark can damage a credit score and signal a higher risk to potential lenders.

Services That Report Utility Payments

Individuals can use third-party services to ensure their on-time utility payments are reflected on their credit reports. These services allow consumers to gain credit for responsible financial behavior that traditional reporting often overlooks. One prominent example is Experian Boost, a free service that allows users to connect their bank accounts to identify and add qualifying on-time utility and telecommunications payments to their Experian credit file. This includes payments for gas, electricity, water, internet, and even streaming services.

Experian Boost reports only positive payment history, ensuring late payments do not negatively impact the score through this service. Once verified, this data can instantly update an individual’s FICO Score based on Experian data. Another service, eCredable Lift, also reports various non-traditional payments, including utilities, to credit bureaus such as TransUnion. These platforms involve linking bank accounts or credit cards used for bill payments, allowing the service to scan for and report eligible payments, sometimes including up to 24 months of past payment history.

Other reporting services exist; some cater to rent payments but also include utilities, often for a fee. For instance, some property managers use services that can report both rent and utility payments to credit bureaus. These services offer a method for individuals, particularly those with limited credit history, to establish or build a positive credit record based on payments they are already making. The process involves signing up for the service and granting permission to access bank or payment account data to verify on-time payments.

The Impact of Reported Utility Payments on Credit Scores

When utility payments are reported to credit bureaus, either through third-party services or as a result of delinquency, they can influence several components of a credit score. Payment history is a primary factor in credit scoring models, accounting for 35% to 40% of a FICO or VantageScore. Therefore, adding a history of consistent, on-time utility payments can strengthen this component, demonstrating reliability to lenders.

For individuals with a “thin” credit file, meaning limited or no traditional credit accounts, positive utility payment reporting can be beneficial. It helps to establish a payment track record, which is a foundation for building creditworthiness. While impact varies based on an individual’s credit profile and scoring model, an average FICO Score increase of over 10 points has been observed for some users.

Conversely, the negative impact of delinquent utility payments is significant. If an unpaid utility bill is sent to collections and reported, it creates a derogatory mark that can lower a credit score. These negative entries remain on credit reports for seven years and can hinder access to new credit or favorable terms. Such collection accounts indicate a higher risk to lenders, overriding any potential positive influence from other factors.