Does Paying Your Phone Bill Build Credit?

Many individuals wonder if paying their monthly phone bill helps build a positive credit history. Credit is established and maintained based on financial activities reported to major credit bureaus: Experian, Equifax, and TransUnion.

How Standard Payments Are Reported

Credit reporting tracks borrowing and repayment of debt. Lenders, including banks, credit card companies, and mortgage providers, regularly report payment activity to the three major credit bureaus. This includes account opening dates, current balances, and on-time payments.

Most phone companies and other utility providers do not report positive payment history for monthly service bills to credit bureaus. This is because phone services are considered ongoing expenses rather than traditional forms of credit or debt. Consistently paying your phone bill on time does not contribute to building a credit score through standard reporting channels.

When Phone Bills Impact Your Credit

While on-time phone bill payments do not positively affect credit scores through traditional means, specific situations can have an impact. Failing to pay a phone bill can negatively affect a credit score if the account becomes severely delinquent and is sent to a collections agency. Collection agencies can report the overdue debt to credit bureaus, and this negative mark can remain on a credit report for up to seven years from the date of the first missed payment.

Some modern services offer alternative ways for phone bill payments to influence credit. Experian Boost is a free, opt-in feature that allows consumers to add on-time utility and phone payments to their Experian credit file. This can potentially improve FICO scores by recognizing consistent payments that are not traditionally reported. Another option, UltraFICO, also incorporates banking data, including payment patterns, to provide a more comprehensive view of financial behavior, though its availability is more limited.

Effective Credit Building Strategies

Since phone bills are not a primary method for establishing credit, individuals looking to build or improve their credit history can focus on proven strategies. Secured credit cards are an effective tool, requiring a cash deposit that acts as the credit limit. These cards report payment activity to credit bureaus, and consistent, on-time payments can help build a positive credit history.

Credit-builder loans offer another avenue, where the loan amount is held by the lender in a savings account or Certificate of Deposit (CD) while the borrower makes regular payments. Upon repayment, the borrower receives the funds, and the on-time payments are reported to credit bureaus, establishing a payment history. Becoming an authorized user on a trusted individual’s credit card can also help, as the card’s payment history may appear on the authorized user’s credit report, contributing to their own credit profile. However, this relies on the primary account holder’s responsible use.

Using traditional credit cards responsibly is a primary strategy. This includes making all payments on time and keeping credit utilization low. Credit utilization, the amount of credit used compared to the total available, is a significant factor in credit scores, with a recommendation to keep it below 30 percent. Diversifying credit types over time, such as having a mix of revolving accounts like credit cards and installment loans like auto loans, can also positively influence a credit score.