Building credit is an important part of your financial life. Your credit score determines the loans and credit cards you can qualify for and the interest rates of the loans you can get.
You can build credit by making monthly payments toward your loans, so many people wonder whether paying their other bills can improve their credit score.
What Bills Help Build Credit?
In general, lenders will report your payment activity to the credit bureaus. Non-lenders who provide services and send you monthly bills are not obligated to report your payments to the credit bureaus. If you’re paying for a service like internet or a cell phone, those bills typically don’t get reported to the credit bureaus.
In short, if you’ve borrowed money and are getting a bill to pay it back, those payments will go on your credit score and help you build credit.
Your payment history is the number one factor that influences your credit score. Timely payments boost your score, while late and missed payments hurt it.
Other important factors for boosting your credit score include making sure you have a low credit utilization rate and don’t open too many new credit accounts in a short period of time.
Credit bureaus only put the information that they receive from lenders and financial-related legal actions on your credit report. They don’t go out and search for other bills you pay, such as utility bills. They are reliant on receiving information from the parties you’re paying.
That’s one reason that it’s possible to have different credit scores with each of the credit bureaus. If one of your accounts is reported to one credit bureau but not another, your score with each bureau will be different.
Ultimately, that means while loan bills can help you increase your credit, other types of bills generally won’t appear on your credit report and won’t build your FICO score no matter how diligent you are about paying them.
One caveat is that while many companies bill you for services, many won’t report your good actions to the credit bureaus, but missing payments on these services can ultimately damage your credit score.
If those accounts wind up in collections, it can cause your score to drop by a significant amount.
This makes the situation even worse because paying your phone bill and utility bills is important to avoid damaging your credit but doesn’t help build your credit score at all.
That makes it all the more important to pay all of your bills on time and to make sure you get a credit card or other type of loan so you can start building a good credit history.
Bills That Are Usually Reported
A good rule of thumb to use when trying to figure out whether a bill is reported to the credit bureaus is whether the bill is coming to your mailbox because you’ve borrowed money.
In general, if you’re borrowing money from a lender, the bills you receive from that lender do get reported to the credit bureaus: Experian, Equifax, and Transunion.
That means things like car payments, credit card payments, student loan payments, and mortgage payments will all show up on your credit report.
Other information about these bills, such as your credit limit or the original loan amount, as well as the current balance, also appear on your credit report. These are used for calculating the age of your credit accounts and your credit utilization ratio.
Lenders who run a credit check to decide whether you have good credit and are eligible for a loan will tend to report or may even be obligated to report your bills.
Bills That Are Usually Not Reported
Not all bills get reported to the credit bureaus and show up on your credit report.
In general, if you’re paying for a service, but haven’t borrowed money, that bill won’t show up on your credit report and won’t help you build credit. This can include bills such as:
- Rent
- Utilities
- Cable and internet
- Cell phones
- Insurance
- Medical bills
When you pay these bills, the billing company might wind up reporting your payments to a credit reporting agency like Experian, but they are under no obligation to do so.
Paying these bills in a timely manner is still important. Your payments will prevent the service provider from shutting off your access and help you avoid late fees.
Consistent nonpayment may get your account sent to collections. However, your payments on these types of bills generally won’t help you build credit.
How Do Utility and Phone Bill Payments Appear on My Credit Reports?
While most service providers like utility companies and cell phone companies won’t report your payments to credit bureaus, there are some that offer this service. This gives you the opportunity to build credit by paying bills that aren’t from an installment loan.
Some companies, like Experian, let customers sign up to get their non-loan bills included on their credit reports.
The companies offering this service claim that the average user can improve their scores by more than 10 points just by adding their utility and other bills to their credit reports.
These accounts show up on your Experian credit report as monthly bills that help you improve your payment history. Payment history is the number one factor that lenders look at when examining your credit history.
This service won’t impact other things like your available credit, which means your Experian credit rating won’t improve due to a lower credit utilization ratio.
Can Late Bill Payments Affect My Credit Score?
Although paying things like utility bills and rent generally won’t improve your credit score, missing payments on your bills can cause your score to drop.
If you consistently miss your rent payment or other bills, those accounts could eventually wind up in collections.
When you miss bill payments, you wind up in debt to the company providing the service. When the biller sends your account to collections, that means it has sold your debt to a debt collection company that will then come after you for payment.
When you have an account in collections, whether it’s from a loan or a service that doesn’t typically report to the credit bureaus, it can show up on your credit score. Having accounts in collections usually leads to having a bad credit score and a struggle to qualify for new loans.
If you try to get a card from a new credit card company, that lender might see your accounts in collections and choose not to offer a loan.
Other Ways to Build Credit
Though your everyday bills like rent and utilities won’t help you build credit, there are plenty of other ways that you can build credit.
Your credit score relies on five factors. According to Experian, those factors, in order from most important to least important, are:
With some careful consideration, you can take steps to improve each of these aspects of your credit history with Experian and each of the other credit bureaus.
Use CreditStrong
One great service that borrowers can use to boost their credit is Credit Strong.
CreditStrong offers a special type of personal loan called a credit builder loan. When you apply for the loan, CreditStrong will set aside a sum of cash on your behalf.
Each month, CreditStrong will send you a bill. With each monthly payment you make, you’ll build your credit history and start building a good credit score. CreditStrong reports to all three credit bureaus: Experian, Transunion, and Equifax.
When you complete your payment plan, CreditStrong will release the money that is set aside for you. You’ll pay in a bit more than you get out of the account due to interest and fees, but you’ll wind up with some savings and a better credit score.
Apply for a Secured Credit Card
A secured credit card is another great tool for people who want to build their credit. They’re a viable option for both people with poor credit and people with no credit.
When you apply for a secured credit card account, you have to provide a security deposit. Typically, the credit limit you receive from the card issuer will be equal to the security deposit you provided.
Once you get the card, you can use it like any other credit account. You can use it to pay for things in stores and get a bill at the end of the month. So long as you make your payments on time, you can build your credit.
Keep in mind that secured credit cards charge a high interest rate if you carry a balance. Only use the card to pay for things you can afford so you can avoid expensive credit card debt.
Secured credit cards are a good way to add revolving credit to your credit profile. A good place to look for them is at a credit union or from any bank where you have an open bank account.
Pay Off Any Existing Debt
The amount you owe and your credit utilization ratios play a big role in determining your credit score. Paying down your existing debt can help reduce both of these factors, which will give your score a boost with all three credit bureaus: Experian, Equifax, and Transunion.
Another thing you can try is asking your lenders for a credit limit increase. The higher your overall credit limits, the lower your credit utilization ratio will be. That means you can have a higher balance without it having a major impact on your credit score.
Make On-Time Payments Each Month
The number one thing you can do to build credit is make your monthly payments on time. A single late or missed payment can have a massive effect on your score and can take months or more to come back from.
Conclusion
The three major credit bureaus rely on the information they receive from credit card issuers and other lenders to build your credit profile.
That means loan payments will typically help you build credit but other types of bills, like rent and utilities, will not.
