Your credit scores are determined from the credit report data, so you want your reports to display a strong on-time payment history. But not every payment that you make will go to your credit reports.
That implies gym memberships, your health insurance premiums, your cable bill, and others will not improve your credit although you have been paying loyally for years. If your account is sent to collections, though, the inability to pay them can harm your score.
Payments that don’t go into your credit reports can’t help you in building credit, but it can hurt if you fail to pay. Here’s what to know more and some workarounds.
Can Bills Help Build Your Credit?
You might think it helps build your credit whenever you are paying bills on time. That is true for loan and credit card payments. However, many bills, such as rent and utilities, are not reported routinely to credit bureaus like credit card and loan payments.
Making on-time payments with rent and utility bills will not help build credit, unfortunately. But it can surely damage your credit if you fail to make those payments that can lead to collection actions.
If you fall behind on any bill for more than a month or two — from cable to electric — the company may send your previously due account to a collections agency. The collections agency can (and will generally) inform the credit reporting bureau as soon as possible.
That’s not good news, because having a collection action on your report harm your credit score significantly and can indicate a black mark on it until potentially seven years.
Consider Building Credit in Other Ways
Since it is more of a hassle to have your utility bills reported to credit bureaus than it is worth, you should think about other ways to build credit. There are two viable options for adding credit lines without adding debt if you hope to plump a thin credit file up.
Get a Secured Credit Card
Almost anyone with at least $200 can get a secured credit card despite their existing credit status. To do this, you need to deposit some money as a security deposit into a savings account.
The card functions just like any other credit card. Your credit score will improve, as long as you pay your bill on time each month. You’ll get your deposit back, with interest, when you close the account or the bank transitions it to an unsecured credit card.
Be able to know any credit fee structure before applying. You can also be looking for a credit product that can be acquired without even a hard credit inquiry, so you don’t reduce your credit score by just applying.
For both cases, payments made on time and reported to credit bureaus can help you build or rebuild credit, although some of your regular bills do not directly contribute to your score.
Don’t Rush To Close Credit Card Accounts After Paying Off
It’s a widespread myth that your credit score is better with fewer credit cards. The reality is fewer debts are good for your credit score.
Yet having a few more than one or two open accounts — especially if they’re open for many years — can help your credit, even if you’re never using them.
Credit scores can be improved considerably in many ways, but timely payment of utility bills is usually not enough to make a significant difference. Even when gas, electricity, and water are common utility bills that people are paying, the information will not be reported to credit agencies. It will not appear on a credit report of an individual.
On the other hand, loans and credit cards, such as the repayment history, are considerably more critical in shaping an individual’s credit score.