(Article Updated April 12, 2019)
Ever wonder which payment accounts have the biggest potential to influence your credit score? If you are still confused about why some bills sit higher on the credit hierarchy, you are not alone. There is a lot of misinformation about which bills actually impact your credit report.
According to a TransUnion survey, 54% of respondents were under the impression that their utility payments were reported to the credit bureaus. In actuality, credit bureaus do not receive information about rent and utility bills—unless you forgo paying altogether and those bills end up with collection agencies.
The bottom line is that in order for an account to impact your credit score, it has to show up on your credit report. If an account isn’t reported to the credit reporting agencies, then it can’t impact your score in any way.
Let’s take a look at some of the most common bills, and how they affect your credit score:
Utility bills (electricity, gas, water etc.) will not elevate your credit score if you pay them all on time. But if you miss payments on any of these bills and the providers decide to report you to a collector, this will appear on your credit report and ultimately have a negative impact on your score. In other words, if you do it right, you reap no rewards, but if you make some mistakes, it can have lasting effects.
That said, Experian has released a new program called Experian Boost. This free program enables you to connect the bank account you use to pay your utility and cell phone bills. Then, you identify and verify the positive payment history you want added to your credit file. This program is ideal for people who are attempting to repair their credit or have limited credit.
Cell phone accounts
Cell phone, cable, internet and other telecom accounts aren't considered credit accounts. As with utility payments, defaulting on your mobile phone bill can damage your credit score, but paying it on time won’t necessarily boost it either. What’s more important is paying all bills on time in order to establish a solid payment history. Again, if you pay your cell phone payment on time, check out Experian Boost as a possible credit repair option.
Rent and mortgage payments
Paying your rent on time won’t improve your credit score but it’s still an important priority. For the most part, landlords don’t report payments to credit bureaus so you won’t technically improve your credit score for making on-time rental payments. However, if you stop paying them, you can incur late fees and the landlord does have the right to report you to a debt collector. In contrast, mortgage payments are tracked monthly by lenders and reported to credit reporting agencies. Any late payment will certainly impact your credit score.
One type of bill that most certainly affects your credit score is any payment you make to auto lenders. That is because once a bank extends a loan or lease for a car, it will start reporting your payments to credit bureaus. If you miss even one payment by several days, you could see some damage to your credit score.
Credit card payments
Your credit card balances and payment history have one of the biggest impacts on your credit score. In fact, the more “maxed out” your credit cards, the bigger of a drop you’ll see on your credit score. In order to boost your credit score, try keeping your balances to no more than 30-40% of your available credit. Lastly, even if you are struggling financially, always make sure to pay at least the minimum amount due and set your cards on auto-pay to never miss a payment.
All student loans represent money that has been lent to you and affect your credit. Student loan lenders report each monthly payment to credit bureaus and whether it was paid on time. In you can manage making minimum payments every month and build a positive credit history, it can enable you to buy a home or get a car loan in the future.
Library fees & parking or traffic tickets
According to Rod Griffin, director of consumer education and awareness at Experian, fines reported through municipalities and municipal court records are no longer collected to determine credit scores. However, that is not to say that some cities won’t turn over unpaid fines to a collection agency, which could then turn the information over to credit reporting agencies.
Here is a detailed list of bills that generally don’t impact your credit score unless they are turned over to a debt collection agency:
- Utilities (gas, water, or electric service)
- Cable, satellite, or internet service
- Insurance premiums (auto, homeowners, health, and life insurance)
- Medical bills
- Cell phone
- Gym membership dues
The accounts listed in the bullets above are generally not reported to the three credit reporting agencies (Equifax, TransUnion and Experian). This means that if you do miss a due date on one of these financial obligations, and remedy the situation before any collection agencies are engaged, your credit score won’t be impacted negatively. Of course, you may still face unnecessary late fees, suspension of services, membership cancellations or account closures so do your best to meet all these bill deadlines.
Originally Published May 5, 2015
loanDepot.com, LLC does not provide legal, investment, accounting or tax advice, please consult a financial expert for more information on this subject.