Does Paying Utilities Build Credit?
By Nick Mann
Historically, utility payments don’t help you build credit.
That’s because utility companies don’t report payments to credit bureaus unless they’re delinquent. Utilities haven’t been viewed as credit accounts and there’s an added expense that comes along with reporting payment history.
But that’s starting to change, and there are some cases where paying utilities on time can help you build credit.
How Utility Payments Appear on Your Credit Report
Up until recently, the only time utility payments may have appeared on your credit report was if your account became delinquent.
(Remember that you can request a free credit report to get access and monitor your credit.)
For example, “if you become delinquent in paying your utility bills, the utility companies could report the late payments to the credit bureaus and your credit score could decline,” explains Investopedia.
So if utility payments appeared on your credit report, it was usually a bad thing.
However, there’s been a recent shift where utility payments are starting to be reported to one or more of the three credit bureaus, including TransUnion, Experian, and Equifax.
Reporting a utility payment isn’t something that’s done automatically.
The credit bureaus don’t allow you to directly report your bill payments to them, either.
But there are tools like eCredable Lift that allow you to get credit for paying bills on time.
With eCredable, for example, this is done by reporting your utility accounts to TransUnion, which can help raise your credit scores.
This is similar to paying credit card debt on time or making timely payments on an installment loan. Now, paying bills on utilities can positively affect credit scoring.
It doesn’t necessarily have the same weight as paying a credit card and maintaining a low credit utilization ratio, but it can certainly help.
In this regard, paying bills on time can be a factor in improving your credit score. There are other benefits, like making you more attractive to a bank or credit union and helping you get the best financing.
So if you’re looking for a simple credit building service that shares what you’ve done right with a credit reporting agency, this should be on your radar.
How Utility Payments Affect Your Credit Scores
Again, being delinquent with a bill payment will hurt your credit score. If you get behind on your utility bills, the provider may report it to a collection agency, who, in turn, will likely report it to a major credit bureau.
So if you don’t make your utility payments on time, that’s how your credit score can be negatively affected.
When it comes to raising your credit score, your payment history is worth 35% of your FICO 8 Score. Always make sure your payments are made on time and you will see your credit score start to go up.
As we mentioned earlier, utility payments aren’t something that will be automatically reported.
But tools like eCredable can be used to capitalize on a positive payment history.
Also Read: How to Add Utility Bills to Your Credit Report
With eCredable Lift, the more utilities you pay on time and get reported, the more of a lift you should see in your credit score.
If, for example, you had a starting VantageScore of 491:
♦ Paying one utility could raise it to 534
♦ Paying two utilities could raise it to 548
♦ Paying three utilities could raise it to 549
You can learn more about how utility payments impact your credit score here.
And this is great news if you have no or limited credit history and need to improve your credit file. Rather than having to only stick with conventional credit-building strategies, you can leverage each utility bill payment for building credit.
What Bills Can Build Your Credit?
Nine types of utility accounts can be linked to eCredable Lift.
♦ Power
♦ Water
♦ Gas
♦ Waste
♦ Mobile phones (not prepaid)
♦ Landline phones
♦ Cable TV
♦ Satellite TV
♦ Internet
With this service, your account information and up to two years of payments are securely downloaded from your digital accounts on the utility provider’s website.
Paying your utility bills on time and avoiding late payments can now help you establish good credit.
Can Late Utility Bill Payments Affect Your Credit?
Yes, late utility bill payments can potentially harm your credit score.
Similar to not paying a credit card on time, delinquent payments may be reported to the credit bureaus, which can hurt your credit rating.
Keep in mind that a late payment can only be reported to the credit bureaus if it is at least 30 days late. So payments that are a day or a week late won’t hurt your credit.
And this is problematic because it can create a domino effect that hurts your credit account. If you don’t make payments on time then that tells lenders that you are unreliable and they might not get their money back, which will often result in an application denial.
That’s why it’s so important to stay on top of your utilities and ensure you never fall behind.
One of the best ways to do that is to manage your utility accounts from one bank account and use a system to prevent you from ever missing a payment. This could include setting up auto-pay, which many modern utility providers offer, or setting up notifications to remind you.
Mortgage Lenders in the Future
Something else that will be of interest to anyone looking to leverage utilities for building credit is the recent changes to the way mortgage lenders determine mortgage loan eligibility.
Recently, “the Federal Housing Finance Agency (FHFA) approved the FICO 10T and VantageScore 4.0 scoring models for use by Fannie Mae and Freddie Mac, meaning mortgage lenders must deliver both of these scores to the two agencies when selling their mortgages,” reports CNBC.
The new models look at how your credit score is trending over time - as long as 24 months - as opposed to the current models which only show a snapshot of your credit score for the current time.
This means that within the next 18 - 24 months, mortgage lenders will have to use FICO 10T and VantageScore 4.0 — both of which use utility reporting in their underwriting.
The recent announcement from the FHFA shows the shift that’s happening where utility payments are becoming a growing factor for building credit.
By putting the effort to better monitor your credit and staying on top of utility payments, this should also put you in a better position for obtaining a mortgage.
This won’t apply to everyone, but it’s interesting to see the growing trend of utility bill payment history impacting credit history and mortgage loan eligibility.
Up until recently, lenders and credit score companies haven’t known what to do with utility bill reporting because it’s so new and there haven’t been large enough datasets to train their models on, but that’s quickly changing.
How eCredable Can Help You Build Credit
At this point, we’ve established that paying utilities can be used to build credit. Although it wasn’t possible in the past, and reporting utility payments isn’t done automatically, tools like eCredable allow you to increase your credit score by paying your utilities on time.
If you have one or more of the utility accounts mentioned above, such as power, water, gas, and internet, you can use eCredable Lift to ensure your payments get reported to TransUnion. In turn, this can raise your FICO Score 8 and VantageScore 3.0 credit scores overnight.
This makes it perfect for people who fall under one of the following three categories:
-
You don’t have a credit score.
-
You’re just starting to build credit and want to accelerate the process.
-
You have bad credit and are trying to rebuild it.
Here’s how it works.
First, sign up to eCredable Lift (it costs just $9.95 per month) and link your utility accounts (eCredable currently connects to over 2,000 utility companies). From there, eCredable will automatically report your payments to TransUnion, and you should see a lift in your credit score.
So if you’re looking for a simple way to raise your credit score by reporting payments that most people pay anyway - and for a low price - eCredable Lift is the perfect tool to use. You can learn more about it here.