Do Utility Payments Affect Your Credit Score?

Utility payments like electricity, gas, water, cable TV, and phone bills are a normal part of life. But do these recurring expenses have any impact on your credit scores?

The short answer is: paying utility bills on time doesn’t directly affect your credit score. However, not paying them can hurt your credit if the accounts end up in collections.

In this article, I’ll explain in detail how utility payments can and can’t influence your credit scores. Let’s dive in.

How Credit Scores Work

First it helps to understand what goes into calculating your credit scores.

The most commonly used credit scores are FICO scores, with the FICO score 8 model being predominant. FICO scores range from 300 to 850, with higher being better.

Your FICO score is determined based on these five main factors:

• Payment history (35% impact) – Whether you pay bills on time.
• Amounts owed (30% impact) – How much you owe compared to your credit limits.
• Length of credit history (15% impact) – How long you’ve had credit accounts.
• New credit (10% impact) – How much new credit you’ve opened recently.
• Credit mix (10% impact) – Whether you have different types of credit accounts.

As you can see, payment history has the greatest effect on your scores. But this mainly considers your history of paying back credit accounts like credit cards, auto loans, mortgages, and student loans.

Utility payments are not factored in for most people. Here’s why

Utility Companies Don’t Report to Credit Bureaus

The three major credit bureaus – Equifax, Experian, and TransUnion – compile information from lenders to calculate your credit scores. This includes the payment history on your credit accounts.

But utility companies generally don’t report your payment activity to the credit bureaus. They aren’t required to.

So when you pay your electricity, water, gas, phone, or cable bills on time each month, it doesn’t boost your credit scores.

Likewise, being a few days late on a utility bill typically won’t hurt your credit either. You may get hit with late fees from the utility provider, but your credit scores likely stay intact.

When Utility Nonpayment Damages Credit

Now, here’s the big exception.

If you are very far behind on your utility bills and don’t pay them for a few months, the company may take your account to collections. Collection agencies definitely report to the credit bureaus.

Having a utility bill in collections can seriously wreck your credit scores. Here’s what happens:

• The collection account will appear in your credit reports for up to 7 years.
• Your payment history factor takes a hit from this negative item.
• Your credit utilization ratio may increase if the unpaid balance is high.
• It signals to lenders that you are a high-risk borrower.

This collection item from a utility company will hurt your credit score for years, even if you pay it off in the end. Needless to say, you want to avoid this scenario.

Alternative Credit Scoring Methods

While utility payments don’t affect mainstream FICO scores, some credit scoring models do consider your history with recurring bills.

For example, Experian Boost lets you choose to instantly raise your FICO score by taking into account on-time phone and utility bills.

The challenge is finding a lender that uses these alternative credit score models. Most still rely on traditional FICO scoring.

So Experian Boost may help pad your credit scores with Experian specifically. But those extra points likely won’t transfer over to your reports and scores from Equifax and TransUnion that lenders review.

How to Build Credit Without Loans

Since on-time utility payments alone don’t typically strengthen your credit, what can you do to build your scores? Here are some proven ways:

• Check credit reports for errors – Dispute and remove inaccuracies lowering your scores.
• Keep credit card balances low – Having high balances hurts the “amounts owed” portion of your FICO score.
• Become an authorized user – Get added as a user on someone else’s credit card account in good standing. Their history gets added to your reports.
• Take out a credit builder loan – These loans report monthly payments to credit bureaus as you pay down the balance.
• Open a secured credit card – This requires a refundable deposit that becomes your credit limit.

Building credit takes patience and discipline. But taking steps in the right direction now will pay off later with higher scores and better loan terms.

The Impact of Utility Payments on Getting Services

One final note – utility payment history can impact your ability to get approved for new services like electricity, gas, cable TV, and internet.

Providers may check your account history with other utility companies when deciding whether to offer you service. If you have a track record of late payments, they may require a security deposit before starting new service.

So paying utility bills not only avoids collections damage to your credit, but also helps ensure you can get utilities turned on when moving or opening new accounts.

Key Takeaways on Utility Payments and Credit

• Paying on time doesn’t boost your credit scores.
• Being slightly late typically doesn’t hurt your scores.
• If unpaid for months, accounts may go to collections damaging your credit.
• Alternative credit scoring models factor in utility payment history.
• You can still build strong credit through responsible credit card use.
• A history of late utility payments could make getting new services difficult.

Monitor your credit reports, keep balances low, pay bills on time, and take steps to build your credit. With diligence, you can achieve an excellent credit score over time.