Understanding the Impacts of Phone Bills and Credit Scores
Paying your cell phone bill or another utility bill, such as an electricity or water bill, will not typically appear on your credit report. It is not common for companies to report your payment behavior for phone bills or utility bills to the major credit bureaus.
That doesn’t mean a phone bill cannot impact your credit score, however. Phone bills that have been charged off or referred to collections can be reported by phone bill companies to Experian, Equifax, and TransUnion, which are the major credit reporting agencies. When an account is charged-off, a creditor has written it off as a total loss because they do not believe the debt will be repaid. From there, the account and outstanding balance may be sold or assigned to a collections agency. A charged-off account can stay on your credit report for up to seven years, so it is not ideal to neglect your phone bill, or another bill for that matter. If your account is simply charged-off and has not been sent to a collections agency, you may be able to negotiate with your creditor and agree to pay back a portion of what you owe on your remaining balance.
Since your phone bill can affect your credit score if you miss several payments, you should avoid late payments as much as possible. Payment history makes up around 35% of how your credit score is calculated. Whether you have title loan payments, phone bills, or credit card bills, prioritizing these items in your budget should be your goal.
Factors that Do Not Affect Your Credit Score
Below are examples of actions that may negatively affect your finances, but do not impact your overall credit score:
- Having a High Phone Bill or Utility Bill: Even if your phone bill or utility bill is large and hard to budget for with your current salary, it may not impact your credit score unless you consistently miss payments and your account is written off by your creditor. Additionally, your phone bill does not impact your overall credit utilization ratio, which is the amount of overall revolving credit you are using compared to your total available credit.
- High APR on Your Credit Accounts: Similarly, having a high APR (Annual Percentage Rate) on your credit cards or other credit accounts will not adversely affect your score. However, it’s important to keep in mind that your payment history is a significant factor in determining your credit score, so any late or missed payments reported by your creditors can cause your score to dip. If you cannot handle the current interest rate on your credit card, one of your options is to consider a debt consolidation loan.
- Checking Your Credit Reports: As a consumer, you are able to get a free copy of your credit report every 12 months from any of the nationwide credit reporting bureaus. Checking your credit report will not affect your credit score, and it is important to do this regularly to ensure there are no surprises! Reporting errors can pop up unexpectedly, and regularly reviewing your credit reports helps catch them as soon as possible.
Tips for Managing Your Phone Bill and Credit Score
Now that you understand how your phone bill affects your credit score, you may want to learn more about the financial management process. As a consumer, understanding how to manage your cell phone bill and your credit score can help set you up for success.
Different approaches may work for different people, but the most important tip that many financial advisors recommend to consumers is to live within their means. That doesn’t mean just creating a budget and sticking to it. Fundamentally changing your mindset and refusing to “keep up with the Joneses” can help you control your spending habits and change your financial situation for the better. Try to live more frugally and pay for what you need, not what you want. That way, you can dedicate more of your money towards your debt and keep your credit utilization as low as possible to ensure a higher score.
The best practices for paying your cell phone bill can be simple to understand. First and foremost, make sure that you are getting the best deal possible and not overpaying for the services you have. Most cell phone providers are willing to negotiate with you when you reach out, especially if you mention that you are thinking about switching to a cheaper plan with a new provider. While this negotiation tactic will not always result in a lower bill, it can help you receive free add-ons, such as lower internet bills when you bundle or free subscriptions services.
If you are getting the best deal possible, make sure that you are signed up for automatic payments. Most providers will offer a discount for setting up automatic payments and it will be easier to manage your bills and avoid late payments in the future. Another way to potentially lower your bill is to add unlimited data to your current plan to avoid overage charges. If your payments are still unmanageable, your next step is to shop around for a new carrier with cheaper rates. Sometimes, the bigger company is not always able to offer the better deal!
Make sure to keep your phone bills handy if you do not opt for paperless billing. You can use your recent phone bills as proof of residence when applying for a title loan or renewing your license at your local Department of Motor Vehicles (or state equivalent).
By managing your phone bill and keeping up with your payments, you can avoid your account being charged-off, which helps your credit score in the long run. As mentioned above, it is important to regularly monitor your credit score to ensure there are no reported errors. Managing your credit score may include disputing inaccuracies listed on your credit report, paying your bills on time, and ensuring that your overall credit utilization is as low as possible.
Using Phone Bill Payments to Improve Credit Score
If your credit score is already in the excellent range, then using your phone bill to improve your credit score is not necessary. However, if you are searching for a little bit of a boost, there is a free service called Experian Boost that can link your Experian account with your bank accounts.
When linking this service to your bank accounts that you use to pay your utility bills and your phone bill, Experian will add this information to your credit file and update your FICO score based on your payment history. By consistently paying these bills on time, having this additional payment information included in your credit file can improve your credit score. Experian will not report bills that you miss, so there are no adverse consequences to setting this up.
But, this boost service will not be an asset if your creditor pulls your TransUnion or Equifax score, so there are some limitations to consider ahead of time if you are trying to apply for new credit.
Other Ways to Improve Your Credit Score
After boosting your credit score through a tool like Experian Boost, other ways to improve your credit score include the following:
- Use Your Credit Card and Pay Off Your Entire Balance before the Start of the Next Billing Cycle to Avoid Interest Charges
- Do NOT Miss Any Payments
- Keep Your Credit Utilization Below 30%
- Pay More than the Minimum Amount Due on Your Loans if Possible
- Become an Authorized User on a Credit Card to Build Your Credit (Only do this if the Other User is Financially Responsible)
