Most of you probably think your credit score is some untouchable, sacred entity that only gets tarnished by major financial mishaps. Well, think again, my friends!
Something as mundane as forgetting to pay your monthly utility bills can unleash a torrent of credit calamity upon your score.
That’s right, those seemingly innocuous charges for keeping the lights on and the tunes bumping could be the very things that plunge your creditworthiness into utter chaos.
But fear not! This article will shed some much-needed light on the shadowy depths of utility bill negligence and its consequences.
Get ready to have your mind blown and your credit scores protected while embracing your inner rebel spirit!
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Do utility companies report to credit bureaus?
Utility companies don’t often report your payment history to credit bureaus. Reporting credit-related activities means they’d have to be subject to extra rules and regulations under the Fair Credit Reporting Act.
So, being late on your utility bill payments doesn’t usually dent your credit score. You may get slapped with pesky late fees, but your credit score likely stays unaffected.
But (and it’s a big but), if your payments fall significantly behind (usually by 30 days or more), your account could be sent to collections.
Collection agencies do report to credit bureaus. Yes, your credit score can be seriously damaged if a collection agency exercises the option to report your utility debt to any major credit bureau.
What happens if your utility accounts go to collections?
OK, this is where things can get ugly for your credit score. If an overdue utility bill winds up in collections, that unpaid debt can crater your credit rating like a meteor hitting Earth.
Like any other delinquent account, that utility collections item could stay on your report for up to seven years, even after you finally pay it off.
If you require a car loan or mortgage within that seven-year period, potential lenders will see on your credit report that you’ve had a tough time settling your utility bills. That could negatively impact their decision to approve and the interest rate offered.
As always, collections debt is a huge red flag that you may be a risky borrower.
Does paying utilities build credit?
This one is a bummer. Even if you’re an angel paying every utility bill early or on time, it likely won’t directly help your credit scores.
Utility payments aren’t considered a form of loan or credit that gets reported to credit bureaus. So, since utility companies are not obligated to report, your stellar payment history may go unnoticed and unrewarded.
Other tips to build your credit
Paying utilities doesn’t boost your credit scores — but that doesn’t mean you’re out of luck.
There are still several tried-and-true ways to increase your credit ratings over time. Here are some key tactics to try:
Make payments on-time
Making all payments on schedule is the biggest factor determining your credit scores, whether it’s your credit card, auto loan, mortgage, or other major bills.
Payment history accounts for 35% of your FICO score calculation.
A solid track record of payment responsibility tells lenders you’re financially responsible and ready to take on new credit.
Try to pay more than the minimum payment
While monthly payments don’t directly impact your credit scores, they have a telling effect on your credit utilization ratio. The ratio looks at your overall credit card balances versus total credit limits.
On occasion, try to pay more than the minimum amount required by your credit card company. It’ll help lower your credit utilization ratio and boost your credit score.
Remember that a high credit utilization ratio means lower credit scores and that experts suggest keeping your utilization ratio under 30%.
Monitor your credit
Staying on top of your credit reports from the three major credit bureaus is smart.
Before now, the law allowed you to check your annual credit reports with each agency every twelve months.
Following the uncertainty sparked by COVID, the three credit agencies have extended a program that lets you check your report once a week for free.
Regularly monitoring your credit empowers you to spot and dispute credit-score-wrecking mistakes quickly.
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Fix any mistakes on your credit report
If you pull up your annual credit reports and notice some inaccurate negative items tarnishing your good name, don’t just sit there and take it.
You have every right to dispute those errors or miscalculations directly with the credit bureaus online or over the phone.
Gather any documentation or evidence you can find to support your case and be persistent until they perform a full investigation to correct those reports.
Negotiate a debt repayment plan
OK, there’s some legit debt on your report that you struggled to pay back in full. As much as it stings to admit, sometimes life just gets in the way.
If you can’t pay off all your debt immediately, try to set up a repayment plan with the company you owe or the collection agency. If you can afford a lump-sum payment, collection agencies often agree to reach a compromise.
Get a debt consolidation loan
Another option for resolving spread-out debt in collections is to take out a debt consolidation loan, which allows you to pay off your creditors with one new fixed-rate loan.
A debt consolidation loan allows you to roll multiple debt payments into a single monthly bill, ideally with a lower interest rate that makes payments more manageable.
Be careful to shop for the best terms and pay that consolidation loan off as agreed to avoid repeating the cycle.
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Utility bills can impact your credit score…If you let them
At the end of the day, most utility companies avoid the hassle of reporting your payment history to the credit bureaus.
But fall too far behind on those power, gas or cable bills, and they could easily transfer that debt to collection agencies that will wreck your credit scores.
Paying utilities on time won’t boost your credit, but it can help you develop money management habits that could prevent years of credit score damage.
FAQ
What utility bills affect your credit score?
Any delinquent utility bill debt sold to a third-party collection agency can negatively affect your credit reports and harm your scores. This includes overdue bills from electric, gas, water, cable/internet and even cellphone providers.
How long does it take for a late utility bill payment to affect my credit score?
If you’re just a few days behind on a utility payment, your credit should be OK – though you may face some late fees. However, once your payment is significantly late, the utility company may charge that off as delinquent and send it to collections, which can then be reported to credit bureaus.
Can I remove a late utility bill payment from my credit report?
Yes, but only if it’s inaccurate. You can dispute any mistakes on your credit reports with the three credit bureaus. If you have proof the late payment was reported in error, they must investigate and remove it if they cannot verify the debt.
Will a disconnected utility service affect my credit score
Having a utility service disconnected due to nonpayment may or may not directly impact your credit score. It will increase the likelihood of that overdue bill being sent to collections soon after, which will get reported and cause credit score damage.
Can I negotiate with utility companies to remove late payments from my credit report?
Utility providers are not obligated to report payment history to the credit bureaus — but they can. If a late payment was reported in error, you can negotiate with them to request that derogatory items be removed from your credit report in exchange for paying up. If the utility company does not take active steps to fix the mistake, you can contact the credit bureau and dispute the late payment entry.
