You might think every time you pay utility bills on-time, it helps build your credit. For loan and credit card payments, that’s true. But many bills—including rent and utilities—are not routinely reported to credit bureaus like credit card and loan payments.
Unfortunately, making timely rent and utility payments will not help build credit. But failing to make those payments can lead to collections actions that will almost certainly damage your credit. If you fall more than a month or two behind on any bill—from cable to electric—the company may send your past due account to a collections agency. As soon as they do, the collections agency can (and usually will) notify the credit reporting bureau. That’s bad news because having a collections action on your report will significantly lower your credit score and can put a black mark on your credit report for up to seven years.
Bottom line? Pay ALL of your bills on-time, whether or not your routine payments are reported to the credit bureaus!
If you’re looking for ways to build credit without taking out loans or opening credit cards, there are a limited number of ways to get your on-time payments reflected on your credit report, but in the end they aren’t really worth it. We’ll explain why.
Why aren’t payments on utility bills reported to credit bureaus?
There’s no law that says utility companies do or don’t have to report your good payment history to credit reporting agencies—so it’s really a matter of choice.
If they do, however, they are subject to the Fair Credit Reporting Act. Under the act you have the right to challenge inaccurate or incomplete information. If you do challenge the report, utility companies are required to perform costly investigations and must correct the information. No utility company wants to go through the time and money to fix your report, so they simply choose not to report payments.
Landlords and property management companies usually don’t report your on-time payments, either, because there’s a fee to do so. On the other hand, both your landlord and utility company want to get paid, so that’s why they report late payments, whether there’s a fee to do so or not.
What late payments are reported?
Any time a company or individual decides to use a collection agency to get the money you owe them, that late payment will be reported and will negatively affect your credit score.
This counts for medical bills, loan payments, credit card statements, and even parking tickets, so make sure you don’t skip out. The $20 ticket will cost you a lot less than if it becomes a negative mark on your credit score.
But don’t worry, a one-time slip-up or forgotten payment likely won’t go to a collection agency.
There’s a difference between a late payment and an overdue one. An payment doesn’t become overdue (which could eventually negatively affect your credit score) until it’s 30 days late. So while you might get hit with a hefty late fee if you pay your credit card bill two-weeks after it’s due, that isn’t going to be reported to a collection agency. If you wait too long, though, or simply stop paying your credit card bills, that’s when you’re overdue payments get sent to collection agencies.
The type of bill you’re late on also determines whether or not it’ll be reported quickly. Most mortgage companies impose a late fee on any payment under 30 days late, but after that 30 days you risk a report to the collection agency and, in turn, credit bureaus.
Utilities work differently. While you’ll receive a late payment if you miss a bill due date, you’re typically given a 60-day grace period to get caught up. If you get to the point where the electric or water companies turn off your utilities, that’s a bad sign and likely means you’re months behind on payments. That will be reported to collection agencies.
Some services do report rental payments
There are some businesses that report timely rent payments to credit bureaus, but it’ll cost you (or your landlord).
The credit bureau Experian has recently started to encourage real-estate owners to report on-time payments, but we’re still far off from this being the norm.
If you can convince your landlord or property management company that using a rent tracking service is beneficial, maybe they’ll pay for it. If not, you could offer to pay. But it’s probably best if you spend that extra cash on other credit building opportunities.
Consider building credit in other ways
Since getting your utility bills reported to credit bureaus is more of a hassle than it’s worth, you should think of other ways to build credit.
Some fool-proof ways to help your credit score are
Get a secured credit card: With at least $200, almost anyone can open a secured credit card regardless of your existing credit status. To do so, you must deposit some money into a savings account as a security deposit. The card works like any other credit card. As long as you pay your bill on-time each month, your credit score will improve. When you close the account or the bank transitions it to an unsecured credit card, you’ll get your deposit back, with interest.
Pay your student loan bills on time. Student loan payments are almost always reported to the credit bureaus, so paying them on-time, every time is the first step to good credit.
Don’t rush to close credit card accounts after you pay them off. It’s a common misconception that fewer credit cards are better for your credit score. The truth is that less debt is good for your credit score, but having a few more than one or two open accounts—especially if they’ve been open for many years—can actually help your credit, even if you never use them.
If you do find yourself in need of a loan, but you’re still in the process of fixing your credit, you’ll need a cosigner with good credit.
Find a family member that you trust (typically a parent), and have them cosign your loan. Don’t leave them in the lurch, though. Make sure you can make your rent and car payments on time. If you’re likely to be late or not pay your payments all together, you’ll have a hard time finding someone willing to cosign.
Most utility companies and other billers (e.g, cable companies and wireless carriers) do not report routine payments to the credit bureaus because of the cost and hassle involved. The same goes for most landlords and property management companies. That means paying utility bills on-time does not help to build credit. If, however, you stiff one of these companies, they will likely send your account to a collections agency, and that will harm your credit score.
There are third-party companies that will report your rent and utility payments to credit reporting agencies for a fee, but you may be better off building your credit in more traditional ways.