Does Paying Your Bills Build Credit, and Which Ones?

A credit score is a numerical representation of an individual’s creditworthiness, indicating how reliably they manage borrowed money. It assesses the risk for lenders when extending credit.

Understanding Your Credit Score

A credit score is a three-digit number that summarizes an individual’s credit risk to potential lenders. While various scoring models exist, such as FICO and VantageScore, they evaluate financial behaviors to determine the likelihood of a borrower repaying a loan.

The most common scoring models, like FICO, consider five primary categories. Payment history is the most significant factor, reflecting whether past credit obligations were paid on time. The amounts owed, or credit utilization, assesses the proportion of available credit currently in use. A lower utilization ratio, generally below 30%, is seen favorably.

The length of credit history considers how long accounts have been open and their average age. New credit represents recent inquiries and newly opened accounts. The credit mix evaluates the diversity of credit accounts, such as revolving credit and installment loans. VantageScore models use slightly different weightings.

Bills That Positively Impact Credit

Certain types of bills are consistently reported to the major credit bureaus—Experian, Equifax, and TransUnion—and therefore directly contribute to building a credit history. These are typically traditional credit accounts. Making timely payments on these accounts is crucial, as payment history is the most influential factor in credit scoring.

Credit card payments are a primary example; responsible use, including on-time payments and low credit utilization, can significantly improve credit scores. Secured credit cards, which require an upfront cash deposit as collateral, are also effective tools for building credit history when used responsibly and reported to bureaus. Installment loans, such as mortgages, auto loans, student loans, and personal loans, also build credit through consistent on-time payments. These loans demonstrate a borrower’s ability to manage long-term debt, which is a positive signal to lenders.

Bills That Don’t Automatically Build Credit

Many common household bills do not automatically contribute to a credit score because the service providers typically do not report payment history to the major credit bureaus. These include utility bills like electricity, gas, and water, as well as cell phone bills and internet service payments. Rent payments generally fall into this category as well, unless specific arrangements are made.

The reason these types of payments usually do not build credit is that they are not considered traditional credit accounts by lenders. Providers of these services typically only report to credit bureaus if an account becomes severely delinquent or is sent to a collections agency. If a bill goes to collections due to non-payment, this negative event can significantly harm an individual’s credit score. Therefore, while on-time payments for these services do not typically boost a score, late payments can certainly cause damage.

Options for Reporting Other Bill Payments

Even though many regular bill payments do not automatically build credit, there are options to have them reported to credit bureaus. Third-party services specialize in reporting non-traditional payments, such as rent, to the credit bureaus. These services often require a subscription fee, which can range from a few dollars to a monthly charge. When using such a service, tenants typically pay their rent through the platform, which then verifies and submits the payment information to the credit bureaus, usually Experian, Equifax, and TransUnion.

Another method involves services like Experian Boost, which allows individuals to add eligible utility, cell phone, and even streaming service payments to their Experian credit report. This can potentially improve a FICO score based on Experian data, though it might not affect scores from other bureaus. Individuals can also use a credit card to pay bills that do not otherwise build credit, such as utilities or rent, if the service provider accepts credit card payments. In this scenario, it is the timely payment of the credit card bill itself that contributes to the credit history, not the underlying utility or rent payment. It is important to consider any processing fees associated with using a credit card for these payments.