Does Paying Your Phone Bill Help Build Your Credit?

In order to get loans, credit cards, and other financial products, you need to have good credit. A lot of people want to know if paying regular bills like their phone bill can help them build credit. Here, we’ll talk about how paying your phone bill can and can’t help your credit score.

How Credit Scores Are Calculated

The information in your credit reports from Equifax, Experian, and TransUnion is used to figure out your credit scores, such as your FICO score and VantageScore.

The most important factors that affect your scores are

• Payment history – Whether you pay your bills on time, This makes up a significant portion of your score,

• Credit utilization – The percentage of your available credit you are using. It’s best to keep this below 30%.

• Credit history length – How long you’ve had credit accounts opened. Longer histories improve your score.

• Credit mix – The variety of credit types you have (credit cards, loans, mortgages, etc). A good mix can help your score.

• New credit – Opening too many new accounts in a short period can lower your score.

Now let’s look at how phone bill payments do and don’t impact these factors.

How Phone Bills Can Help Build Credit

Phone companies don’t automatically report your payment history to the credit bureaus. So simply paying your phone bill on time won’t directly improve your credit score.

There are, however, services that will let you report paid phone bills to help your credit score:

• Experian Boost is a free service that lets you link your bank accounts so that Experian can keep track of when you pay your phone bill. This payment history is added as a new line item to your Experian credit report.

• Other bill reporting services – Companies like RentTrack and Payment Reporting Builds Credit allow you to report rent, utility, phone, and other bill payments to one or more credit bureaus. There is usually a monthly fee.

Reporting your on-time phone payments can positively impact your credit mix and payment history factors. However, late or missed payments won’t get reported – only the positive payment history.

Limits of Phone Bill Reporting

While reporting phone bills can help build your credit, there are some limitations:

• It only affects your credit score if reported to a bureau. If you use a reporting service that reports to Experian only, it won’t impact your Equifax or TransUnion scores.

• It will only impact certain credit scoring models. FICO 8 doesn’t use phone payment data, but newer models like FICO 9 do.

• The phone account will show up separately on your credit report, not with your credit card if you use it to pay your phone bill.

• Your phone carrier could still send your account to collections if you fall way behind, negatively impacting your score.

How Late or Unpaid Phone Bills Hurt Your Credit

While on-time payments help, late or unpaid phone bills can damage your credit in a couple ways:

• Phone carriers will often charge late fees and penalties if you miss payments. This makes the balance owed even larger.

• If you fall far enough behind, the phone company may send your account to collections. Having an account in collections severely damages your credit score.

• Even if your phone bill isn’t reported, having your service disconnected for non-payment demonstrates a risk. Phone companies can require large security deposits for new service if you have a history of non-payment.

Tips for Managing Phone Bills Responsibly

Here are some tips to make sure phone bills don’t hurt your credit score:

• Set up autopay through your phone carrier to ensure payments are made on time every month. Just be sure you have enough money in your linked account to cover the bill.

• Review billing statements each month to check for errors and monitor your usage. Dispute any incorrect charges.

• Avoid exceeding your plan limits if possible, which leads to costly overage fees. Upgrade your plan if needed to avoid extra charges.

• Contact your carrier immediately if you’ll have trouble making a payment due to job loss or other financial hardship. They may be able to make payment arrangements.

• Comparison shop for the best phone plan rates so you don’t overpay. Be sure to factor in all fees, surcharges, and taxes.

Other Ways to Build Your Credit

While paying your phone bill responsibly is wise, it should be just part of your overall credit building strategy. Here are some other effective ways to build strong credit:

• Get a secured credit card if you don’t qualify for an unsecured card yet. Make small purchases and pay off the balance each month.

• Become an authorized user on someone else’s credit card. Their good payment history can improve your score.

• Open a credit builder loan. The lender reports your payments to help build your credit.

• Apply for retail store credit cards with low credit limits. Use responsibly.

• Ask your landlord, utility companies, or other service providers to report your on-time payments to credit bureaus.

• Limit new credit applications to avoid too many hard inquiries.

• Maintain low credit card balances compared to your limits.

Building strong credit takes time and responsible habits. Monitoring your credit reports and scores lets you track your progress. Be patient and keep up the good payment history.