Can you use your cellphone bill to build credit?

If you’re interested in building credit, you may have heard that your payment history is a major factor in calculating your credit score. Credit card companies, mortgage lenders, auto lenders and others report your payments to the credit bureaus.

With cellphone service now costing the average household $1,844 per year, it’s understandable to wonder if you get any credit for paying your bill on time. Here’s what you need to know about how your cellphone bill can help or hurt your credit, plus some other strategies you can use to build credit.

How your cellphone bill can affect your credit

Unlike your mortgage or car payment, paying your cellphone bill on time each month may not help increase your credit score.

Typically, cellphone providers don’t report your payment activity to the credit bureaus. When you pay your phone bill, you’re paying for services rather than repaying money you borrowed.

Unfortunately, it’s easier for your cellphone bill to negatively impact your credit. Your credit may take a short-term hit when you open the account. Cellphone providers may report missed payments or unpaid bills to the credit bureaus.

Ways your cellphone bill can negatively impact your credit score

When working to improve your credit, it’s important to understand how your cellphone bill could hurt your efforts.

Opening new accounts

When you open a new account, your cellphone carrier will likely perform a hard credit check, even if you’re not financing a phone. The credit check is designed to predict whether you will pay your bill on time.

This credit check can cause a temporary hit — as much as 10 points — to your score. If your score is already low, this drop could push you into the bad credit range. Fortunately, hard inquiries completely fall off your credit report after two years, so any impact is short-lived.

Missing payments

Paying your bills on time every time is key to a good credit score, and your cellphone bill is no exception. While paying your cellphone bill won’t necessarily improve your score, missing payments can cause your credit score to drop.

Fortunately, a single late or missed payment probably won’t impact your score. However, if you miss multiple payments, your cellphone provider may report the account as delinquent or send it to collections. This negative information can hurt your credit score until it falls off your credit report.

How to use your cellphone bill to build credit

While your on-time cellphone payments aren’t automatically included in your credit report, there are some strategies you can use to benefit from your positive payment history.

Report your payments to credit bureaus

It’s not possible to directly self-report your cellphone payment history to the credit bureaus. However, you can authorize various third-party companies to track and report certain monthly bills that aren’t generally included in credit reports. That can include anything from your cellphone and internet services to your power bill and rent payment. Fees may apply.

Experian Boost, a free service the credit bureau offers, is another option. It allows you to add your cellphone account (and other regular payments) to your Experian credit report. Your on-time payments are factored into your credit score, but your late payments aren’t included.

Reporting your payments to the credit bureaus might be a good option if you have little credit history and are looking for alternative methods to build credit.

Use a credit card to pay your phone bill

Cellphone providers don’t report on-time payments to the credit bureaus, but credit card companies do. That means you can pay your cellphone bill with a credit card to get recognition for your positive payment history.

To build credit with your phone bill, charge the monthly bill to your credit card, then pay off the full credit card balance on time. Consider setting up automatic payments to make the process simpler. Depending on the credit card you use, you might even earn rewards for paying your cellphone bill or benefit from cellphone protection insurance.

Using a credit card to pay your phone bill might be a good option if you have a credit card and can pay off the balance in full each month.

More ways to improve your credit

If you don’t have much credit history or have poor or bad credit, there are many strategies you can use to start establishing or repairing your credit. Here’s a look at some options to consider.

Get a secured credit card

A secured credit card is a type of credit card designed for people with no or bad credit. It requires a cash deposit, and the amount of money you put down typically becomes your credit limit. Then, you can use the card to pay for your cellphone bill or other purchases, just like with a typical credit card.

Use a secured credit card wisely to build credit. Try to keep your balance low to maintain a good credit utilization ratio, and remember to pay the full balance on time every month. With responsible use over time, you may be able to upgrade a secured credit card to an unsecured version.

Apply for a retail credit card

A retail credit card is a type of credit card that’s offered by a specific retailer. Some retail credit cards can only be used at the issuer’s store or chain of stores, while others can be used anywhere that major credit cards are accepted.

Retail credit cards are among the easiest credit cards to get. Many cards only require that you have a credit score in the fair range (580 to 669) or higher, so they can be a good option for building credit. The tradeoff is that they tend to have low credit limits and high interest rates.

Become an authorized user

An authorized user is someone who’s been added to another person’s credit card account. They can make purchases using the card, but they’re not responsible for paying off the balance. They also can’t make any changes, like asking for a credit limit increase.

Becoming an authorized user on a friend or family member’s credit card is a way to piggyback off of their good credit history. The primary cardholder’s history of on-time payments will appear on your credit report, potentially benefiting your score.

However, while the authorized user can make charges, they are not legally responsible for repayments, so it’s important to be responsible with your purchases so you don’t damage your relationship and the other person’s credit.

Consider a credit-builder loan

A credit-builder loan is a type of personal loan that’s designed for people with no credit or bad credit. The only purpose of a credit-builder loan is to help you build credit, so it works in the reverse of other types of loans. Instead of borrowing money and paying it back over time, you don’t get the funds until the loan is paid off.

Here’s how it works: The lender sets aside the amount you’re approved to borrow. Then, you make monthly payments, and the lender reports your on-time payments to the credit bureaus. Once you’ve made all the payments, the lender releases your loan funds.

The bottom line

Your credit score represents your creditworthiness, which lenders use to estimate how well you handle debt. A good credit score shows that you are likely to repay borrowed funds as agreed, while a poor credit score may show that you’ve had difficulty managing debt in the past.

Reaching a good credit score can help you access the funds you need to reach your financial goals, like buying a home. It can also help you qualify for lower interest rates and the best rewards credit cards. If your credit is poor, prioritize good financial habits — like paying your cellphone bill on time — and consider strategies that help build credit.

Frequently asked questions

• What types of bills help build your credit score?

  When you borrow money and agree to repay it over time, the issuer reports your payment activity to the credit bureau. Mortgage payments, car payments, student loan payments and credit card payments are some examples of bills that help you build credit when you pay on time.

• Can financing a cellphone help you build credit?

  Even though your cellphone provider’s financing plan acts as a loan, it’s not reported to credit bureaus. That means it doesn’t improve your credit score like other loans may. However, if you fall behind on your payments, it may negatively affect your credit.

• How long does an unpaid cellphone bill stay on your credit report?

  Negative information, such as a cellphone bill that was sent to collections, typically stays on your credit report for seven years. If you paid the collections account, it will remain on your report, but should be shown as paid. Paid collections may have little or no impact on your credit score.