Do Utility Bills Affect Credit Score?

Utility bills and credit – do utility bills affect your credit score?

A credit score is a three-digit figure that indicates your creditworthiness and payback capacity, therefore guiding the credit providers. A credit score is a numerical indication of creditworthiness wherein the credit risk increases with proximity to 300 and decreases with proximity to 850. Payment history is one of the many elements that define your credit score. This applies to your monthly payment of your loan, credit card, and other installment debt. Does your credit suffer or gain from utility payments like gas, electric, water, cable TV, and phone bills? Here is everything you need to know.

The Short Answer

Utility payments generally have no credit score credit or debited effect. This is so because most utility companies ignore your payment history with them when considering the three main credit bureaus—Experian, Equifax, and TransUnion—that define your score. Consequently, your credit report or credit score will not change whether or whether you pay your bills on time, very little, or perhaps none at all.

There are, nonetheless, certain exceptions. Once the customer is past-due by a few months, several utility companies and cell phone service providers are known to notify credit reference bureaus of non-payment. Your credit suffers also if there is a utility obligation taken to the collection. Still, you have no cause to be concerned about your credit score as long as you have been sometimes or monthly paying your utility bills.

Examining the several elements that define credit ratings helps one to grasp the computation process.

To ascertain the three-digit values known as credit scores, Equifax, Experian, and TransUnion use formulae and computations. Named for the business that created it, the FICO score is the most often used of all the models. Although exact methods vary on the credit bureaus, some important elements influence your score.

Use of credit accounts – Whether you make payments of accounts such as credit cards, loans, and mortgages diligently. This is often the largest component; it ranges from 30–35% of your overall score.
Credit utilization – The sum of total balances divided by total credit limits on revolving credit accounts, such as cards. Anything lower than the ratio is preferred when it comes to calculating the score.
Credit history length – The length of your credit history, or how long you have had credit available to you. The longer the histories are, the higher the scores given by the respondents.
New credit applications – It is not advisable to apply for a lot of credit at once as this may lower your score.
Credit utilization - Using credit cards, installment loans, a mortgage, and other forms of credit.

As you can see, utility or cell phone payments do not factor into the FICO algorithm utilized by the credit bureaus. One key factor is the fact that the majority of utility and cell providers never report payment data – whether positive or negative – to credit bureaus.

When Utility Nonpayment Damages Credit?

Thus, on-time utility payments do not affect credit scores, but failure to pay utilities can negatively impact your score in some cases. Here are two examples:

Utility provider sends bill amounts to credit bureaus – Some of the enormous utility companies and cell phone service providers do send unpaid amounts to the credit bureaus once the account has become severely delinquent. Every company has its own rules regarding when and whether to report customers. If you fail to pay your bill and there is a utility debt in your credit report, it will go down.
The account gets to collections – If you are unable to pay the utility or cell phone bill even after the company has tried to make the necessary collections, then the provider will sell or transfer your account to a third-party collection agency. If you have collection accounts listed in your credit report, your score will be greatly affected. A single account associated with collections can reduce the credit score by more than 100 points.

In addition to how delinquent payments can affect an individual or household’s creditworthiness in these situations, there are other consequences for not paying utilities which include having services shut off, deposit, late fees, and the cost of reconnecting from the provider. In the worst-case scenario of nonpayment, even basic services such as electricity and water could be turned off. Of course, there are many valid reasons to ensure that the utility and cell phone bills are paid in full and timely.

How to Protect Your Credit from Unpaid Utilities?

If you get behind on utility or cell phone bills and want to avoid credit score damage, here are some tips.

Call the provider right away – Inform them of your circumstance and discuss whether or not they can accept a payment plan. This may also hinder reporting or collection activity in the future.
Pay whatever you can – Some form of partial payment is better than none, as it demonstrates that you are willing to pay to clear the remaining amount.
Seek payment help if necessary – There are plenty of ways to pay for basic utility expenses, especially for families with low income. If funds are an issue, do a quick search on what might be out there for you in terms of assistance.
Explain reasons for being behind in payment – Even though you might be behind on your payments, you might be able to persuade the power company to let you off the hook for the extra charges that come with late payments.
Make recurring payments automatic – This will eliminate future payment reports or collections if not paid on time. Partial, automatic payments are still helpful.

In this way, one can only hope that having overdue utilities will not harm credit history and FICO score if the person remains active in searching for help. Check your credit reports daily for any utility debts that have been reported or sent to collections so that you can address them.

What Other Ways to Establish a Good Credit Rating?

While utility payments may not directly influence your credit score, there are plenty of things you can do to build your score over time.

Maintain a good credit score – This is one of the best ways, since all the other bills, such as credit card bills, loans, mortgage payments, and any form of debt, should always be paid on time. The most influential factor is payment history. Ensure you are paying your bills on time by setting up automatic payments where possible to avoid such mishaps.
Revolving credit – Always ensure that your total credit card balance is below 30% of the limit granted across your cards. Lower is even better.
Reduce credit applications – Only apply for credit when it is very essential such as when purchasing a car or a house. Having too many hard inquiries and opening too many new accounts at once seems reckless.
Be aware of your credit scores – You should go through your credit reports and analyze your scores at least once a year. You can also check the score of the credit report frequently for any change in the status.
Be patient - Length of credit history contributes to nearly one-fifth of the credit score. Build your positive history on a month-to-month and year-to-year basis.

The best way to handle your bills is to pay the monthly bills such as utilities, cell phones, and cable on time. But those payments mostly do not have a positive or negative impact on your credit score. Thus, you should only open credit accounts that are reported to bureaus if managed responsibly, such as credit cards and loans, and completely disregard utility payments as you strive for an excellent credit score. Track your credit reports to ensure that none of the utility debts are reported or sold to collections. If they do, one should attend to them fast to avoid doing more harm to your score.

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