Do utility bills affect my credit score?

We all know we're supposed to pay our bills on time and carry as little debt as possible—the two major factors that go into calculating our credit scores. Yet, there are other, smaller factors many people aren't aware of that can also have an impact on our scores.

Key Takeaways

• Failing to pay even small bills could lower your credit score.
• Too many recent applications for credit could also be a negative.
• If you have a business credit card and are the primary account holder, it can also show up on your personal credit report.

1. Small Unpaid Debts

Many people pay their mortgage, credit card, and utility bills with unflappable consistency, yet neglect smaller debts. They may feel these debts are less important or that they will just go away if ignored. But sometimes they won't. Municipalities were once known to report unpaid parking tickets and even library fines to credit bureaus, for example, although that practice has largely been curtailed. Still, other unpaid debts, however trivial they may seem, can weigh down your credit score.

2. Utility Bills

Your electricity or gas bill is not a loan, but failing to pay it can hurt your credit score. While utility companies won't normally report a customer's payment history, they will report delinquent accounts much more quickly than other companies you may do business with.

3. Too Many Recent Credit Applications

It can be tempting to sign up for new credit cards that offer an attractive bonus for your business. Banks may offer tens of thousands of points or airline miles, while retailers provide in-store discounts when you apply for their credit card. A single application may have little effect, but too many in a short time period can lower your credit score. So limit your number of applications for credit, especially if you are getting ready to shop for a home, car, or student loan, where a strong credit score could be extra important.

4. Long-Term Loan Shopping

To allow consumers to shop around for the best rates on automobile, student, and home loans, FICO will not penalize people who have multiple credit inquiries in a short period of time. Various FICO formulas discount multiple inquiries within either 14 or 45 days. However, continuing to shop around for a loan over several months will fall outside of this safe harbor and likely lower your score.

5. Business Credit Cards

Do you have a credit card for your business? If you are the primary account holder on the card, most banks will hold you personally responsible for any debts you rack up with it, as well as reporting your payment history to the credit bureaus. Late payments or unpaid debts will affect your personal credit, so be sure to use any business cards as judiciously as your personal ones.

6. Mistakes You Didn't Make

Incorrect information in your credit history can hurt your score. People with common names, for example, frequently find other people's information in their file. In other cases, typos and clerical errors result in adverse information affecting your score.

This is one of the reasons consumers are encouraged to check their credit reports at least annually and dispute any mistakes they find. You can obtain free credit reports once a year from each of the three major credit bureaus through the official website, AnnualCreditReport.com. One of the best credit monitoring services could also be useful in this endeavor.

Review your credit reports at least once a year to check for errors or missing accounts you'd like to see listed.

7. Missing Accounts

Sometimes the problem isn't what's in your credit report but what's not in it. Some of your creditors may not supply information to the credit bureaus. That could mean a lower credit score if, for example, a credit card you have a pristine record of paying off on time isn't included in your report, while another, where you've missed a payment or two, is. If you find any such accounts have been left off your report, FICO suggests you either "ask your creditors to begin reporting your credit information to credit bureaus" or "consider moving your account to a different creditor who does report regularly."

If any of these factors are weighing down your credit score, one of the best credit repair companies might be able to remove these negative marks on your credit reports on your behalf.

Credit scores can be improved in many ways, but paying utility bills on time is usually not enough to make a meaningful difference. While gas, electric, and water are common utility bills that people pay, the information is not reported to the credit agencies and does not appear on an individual's credit report. On the other hand, loans and credit cards, including repayment history, are substantially more influential in determining an individual's credit score.

Key Takeaways

• Generally, utility bills do not appear on a credit report unless they're delinquent and referred to a collection agency.
• If you have long-overdue bills, a utility company can send your account to a collection agency that can forward it to one or more of the credit bureaus.
• If you want to build your credit score, simply paying your utility bills on time usually won't do the trick.
• On the other hand, secured or unsecured loans (even secured credit cards) are reported to credit bureaus.
• Strategies to boost credit scores include repaying debt on time, keeping debt utilization ratios low, and establishing a history of responsible borrowing.

Utility Bills and Credit Reports

The bad news for consumers is that, typically, utility bills only appear on a credit report when they're delinquent. In most states, providers aren't obligated to regularly report payment histories to the major credit bureaus; in fact, there are significant disincentives for doing so. In addition to being expensive, reporting to credit agencies makes the utility company subject to the Fair Credit Reporting Act. Most don't want to bother with the potential legal fallout.

If you're significantly behind on your bills, a gas, electric, or water provider may send your account to a collection agency that could—and likely will—forward the information to one or more of the credit bureaus. Of course, paying your bills on time will help your credit, insofar as the absence of "negative" items does not ding your score.

But if you're looking to improve a credit score, simply paying gas, electric, or water bills on time probably won't do the trick.

Credit Score Strategies

A more effective way to improve your credit score is to obtain a secured or unsecured loan and use the credit responsibly. These types of lenders report consumer information to all three credit bureaus and paying account balances on time (and, if possible, in full) can help establish a positive credit history.

Credit bureaus look at a number of different factors in determining credit scores. The length of your credit history, your mix of credit, and new credit are key variables. A track record of making payments on time is the most important variable, followed by total debt owed. This is also known as credit utilization.

The credit utilization ratio can be influential in determining credit scores as well. The ratio measures the amount of credit used relative to the total amount of credit available (sum of all credit limits on all loans).

If, for example, an individual has only used 10% of their total available credit, the ratio is relatively low and this low utilization rate will likely have a positive effect on a credit score. On the other hand, if an individual has a number of loans that have reached their credit limits—i.e., are "maxed out"—the credit utilization ratio is high and will have a negative impact on the person's credit score. Paying down account balances or asking for credit limit increases can bring down credit utilization rates.

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