Can utility payments impact your credit report? Yes, they can! Plus, the longer you pay them on time, the greater the impact to your credit score.
You also need to pay utility bills on time, and you might wonder whether these payments will be able to help you improve credit scores. After all, on-time payments are on-time payments — it shouldn’t matter if you’re repaying a loan or keeping the power on.
Bad news … and good news
Unfortunately, paying your utility bills does not usually have an impact on your traditional credit scores.
But there are some important exceptions:
1. If an optional or alternative credit rating is used, those payments can help you get approved.
2. If you fall too far behind on utility payments, your credit will most likely suffer as accounts go to collection agencies.
3. Your history of utility payments may affect your ability to acquire other services (in case you move or change service providers, for instance).
You’ve got numerous credit scores. The most significant credit score is your FICO credit rating (and you have several FICO credit scores — at least one for every major credit reporting service). That score looks primarily at the way you have repaid loans in the past and your current debt profile. It is the score that lenders generally use for substantial high-dollar loans like home loans along with standard loans. Utility payments are not currently factored into the FICO credit rating.
A different approach
The associations developing those scores recognize that lots of customers don’t have sufficient borrowing history to generate a FICO credit rating. The credit reporting agencies hardly know these people today exist, but they are perfectly good candidates for loans and utility service. These individuals and households create on-time obligations to multiple businesses every month (for phone support, internet, cable, power, gas, water, trash, sewer, HOA dues, and more).
Those payments should count for something, and new credit ratings are figuring out how to identify responsible consumers and let them receive loans.
The challenge is finding a lender which uses those alternative credit scores. You can expect an increasing number of lenders to do so, and FICO scores are even evolving to add utility payments with time.
If you don’t pay your utilities
The second way that your utility bills can influence your credit scores is if you quit paying them.
While many utilities never report positive information (that you’ve consistently paid on-time, by way of example), they will report negative information. When your account goes to a collection agency, the debt will be reported to the four major credit reporting agencies.
Those set accounts certainly damage your credit. What is more, they could turn into legal judgments against you personally, which are also bad for the credit ratings. In addition to all that, you will likely owe additional fees because of the collection account.
Is this fair?
That may seem like an unfair deal: Utility providers can harm your credit if you don’t cover, but you do not get any benefit (besides the service provided) for paying your bills. Those businesses don’t have to be as careful and thorough as creditors — they are not giving you thousands of dollars that you can skip out — they don’t want to be more subject to the requirements of the Fair Credit Reporting Act (FCRA).
Because of this, they’ll start an account for you and supply services, and your credit only gets involved if you fall too far behind on the bills.
Just how far behind? The same as with your loan payments, paying a couple of days late is not very likely to cause big problems (though late-payment fees surely add up). When payments are more than 30 days overdue, those payments will get noticed, and collection bureaus will only get involved once you’ve ceased making payments for several months or more.
Establish “credit”
Although your utility payments may not directly impact your ability to get financing, these payments can help or hurt you in different areas.
Similar to other credit scorers, some businesses track your history of payments. Should you always pay on time, it’ll be less difficult to get services. If you have a history of paying late, then it will be much more difficult to acquire service (you may need to jump through additional hoops or make a huge deposit for service turned on).
So, depending on what you mean by “credit,” those usefulness payments can indeed significant.
How to build credit
Keep paying on time
If you are trying to build your credit, it is essential to keep making all your utility payments in time. These payments may assist your traditional credit scores (it is getting more and more inclined every year) — and you risk damaging your credit if you fall too far behind on payments.
Check your charge
As well as remaining current on utilities, look closely at your traditional credit data. For starters, check your credit reports regularly (it’s free under federal legislation). Get a report from each major credit bureau every four weeks, which means you’ll catch problems before they get out of hand. Fix any errors in your reports, as they can unnecessarily drag your scores down.
Secured loans
Financing and on-time payments should improve your credit scores. If you’re having a hard time getting approved, consider a secured loan. Even a little loan of a few hundred dollars can help. With a secured loan, you supply money or some other security to reduce the lender’s risk. Money is probably the very best kind of security, and a money deposit may help you qualify for a secured credit card. The goal of using a secured loan is not to earn money. The goal is to pay back the loan and build credit.
Help from co-signers
If you still can’t get qualified for a small loan, somebody you know might have the ability to help you. A cosigner signs a loan program using you and promises to repay if you don’t make payments. This person is taking a risk by assisting you (also their own credit may be influenced), so it is a huge favor to ask.
Just ask that favor from somebody who:
1. Has better credit than you,
2. Has sufficient income to help you qualify for a new loan and cover their present obligations,
3. Is able to take the risk you won’t repay. (They will probably be 100 percent accountable for your debt if you cannot pay for any reason. Even if you’re hurt or killed in an accident.)
4. And lastly, someone who understands the dangers of past-due for you.
Get caught up
Your credit is primarily based on your history of making on-time payments. If you are behind on loan payments, get caught up — your credit will quickly improve. If you are struggling with debts, then get in touch with your creditors and ask if there are any applications available to help you get back on the right track. Being proactive may open doors that you did not know existed.
Take a look at Datalinx. Our credit bureau reporting software and unlimited support will help you furnish credit data to the four major credit bureaus. We’ll make sure your data is submitted with quickly and accurately and in Metro 2 format. Complete the form to the right or give Datalinx a call today to get started.
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