Does Financing a Phone Build Credit?

Financing a phone can help you build credit – but it’s not necessarily a given. If your creditor reports your account and payment activity to a credit bureau, you may have the opportunity to develop a credit history. However, how responsible you are with payments will ultimately impact whether financing your phone helps your credit or hurts it. 

Here’s everything you need to know about financing a phone to build credit.

How to build credit by financing a phone

With smartphones becoming increasingly more expensive, many consumers are choosing to finance their phones to break down a large purchase into more manageable payments. Many consumers are also enticed by low, or sometimes even 0%, APR rates attached to these plans. 

You may be able to finance a phone through your carrier, the phone manufacturer, or sometimes even a third party. For example, if you are buying an iPhone from Apple or a smartphone from Samsung, you should be able to finance your new phone directly with them. 

Sometimes, consumers will use a 0% APR credit card offer to make their purchases more affordable over time. 

If you do decide to finance your phone, you should expect that your creditor, or the company you’re taking the loan from, will run a hard inquiry when you apply. This is a standard procedure, typically to ensure that you’re trustworthy enough to manage your payments. The downside is that a hard inquiry causes a temporary, slight dip in your credit score. Typically, this should resolve in a couple of months. 

If you have bad credit or little to no credit history, you may be denied financing for a new phone. If this happens, you may want to consider waiting until your credit score improves before purchasing a new phone. 

Even if you do find financing offers with poor credit, they’re likely to be more expensive and cost you more money in the long run. Instead, a better strategy is to focus on improving your credit score now – by making payments on time and keeping debt levels low.

Does paying off a phone build credit?

So long as you pay your phone bill on time and regularly, you should be able to build credit. Remember, it’s important to double-check that the company you are financing a phone from will report your account activity to the credit bureaus. 

The main credit bureaus include Equifax, Experian, and TransUnion. If your account is not reported to these bureaus, you won’t have the chance to build credit. 

Financing a phone can affect your credit in a number of ways, particularly by impacting the factors that make up your overall credit score.

Payment History: 35%

Amount Owed: 30%

Length of Credit History: 15%

Credit Mix: 10%

New Credit: 10%

How financing a phone can help your credit score

Like any personal loan or credit account, opening a new account will help your credit mix. Your credit mix accounts for about 10% of your overall credit mix. Generally, creditors want to see you’re responsible with a variety of different accounts, such as loans, credit cards, etc. 

By far, the most impactful way to boost your credit score is to be responsible with your payments and overall account. Payment history, or the number of times you’ve made payments on time, accounts for a whopping 35% of your total credit score. 

How financing a phone can hurt your credit score

Financing a phone can hurt your credit score if you’ve had a number of hard inquiries and late payments. It’s commonplace for creditors to conduct a hard inquiry into your credit report when you open an account. New credit cards account for 10% of your overall score, and can typically have a negative impact when you open a new account. Fortunately, it’s usually short-lived. 

Another way financing a phone can hurt your credit is by lowering the average age of your credit accounts, a factor that makes up 15% of your total score. 

Late payments are one of the biggest culprits when it comes to credit score damage, so it’s important to be on time. If you fall too far behind on payments, your creditor may close your account and transfer it over to a collection agency – which can damage your credit even more.

Other ways to build credit

Aside from financing a phone, there are also many other ways to build credit. You should focus on your open accounts first, and work to pay off any outstanding debt you have. Remember, the total amount you owe makes up 30% of your total score. Paying down your balance on an existing loan or credit card can give your credit score a sudden boost. 

Aside from your phone bill, you may also want to check with your landlord or utility provider to see if they can report your payments to a credit bureau. If you’ve been responsible for these bills, having them on your credit report should work in your favor. 

Build credit with credit 

Financing a cell phone can affect your credit – for better or for worse. Although you can’t control the negative effects associated with a hard inquiry or the average age of your credit accounts dropping, you do have control over how responsible you are with your new account. This means making your payments regularly and on time, while also refraining from taking on additional debt. 

Whether you’re financing a new phone or taking on another type of debt, these best credit practices will help you build credit over time. 

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