Does Paying Utility Bills Build Credit?

Utility bills are not typically reported to credit bureaus. However, you may be able to use a third-party service to report them.

Perhaps you don’t have much in the way of traditional credit (like loans and credit cards) and you want to find another way to build credit. You have monthly bills — rent, utilities, internet, phones and subscriptions — and you pay them on time. So you may want to get credit for your positive payment history.

This article discusses how utility payments can affect your credit (both positively and negatively), whether you can use your utility bills to build credit and other ways to improve your credit.

Table of contents

• Does paying utility bills help build your credit?
• Can utility bills hurt your credit score?
• How to use utility bills to build your credit
• What bills are automatically reported to the credit bureaus?
• Other ways to build your credit
• Building your credit

Does paying utility bills help build your credit?

Utility companies generally don’t report positive payment history to the three major credit bureaus (Experian, Equifax and TransUnion). If this payment activity doesn’t appear on your credit report, it can’t help your credit score.^[1]

However, you can choose to add your payment activity to your credit report by signing up for third-party credit reporting services.

Can utility bills hurt your credit score?

While positive payment history doesn’t traditionally appear on your credit report, the same can’t always be said of negative payment history. Missing payments on your utilities and defaulting on your payments altogether can cause your account to end up in the hands of a collection agency, as a collection account.

The single largest factor in your FICO® credit score is payment history which makes up 35% of your score. Suppose you miss payments and your utility account becomes delinquent, utilities have collectors in-house that work to get those accounts up to date, but when they stop collecting and charge it off that can impact your credits. In that case, these negative marks may appear on your credit history and impact your score in a negative way.^[2]

How to use utility bills to build credit

Because utility bills won’t automatically appear in your credit file, we will show you a few ways to submit your positive payment history to the credit reporting agencies.

Consider a third-party reporting service

To receive credit for paying your bills on time, consider signing up for a third-party reporting service to help get your positive payment history into your credit file, such as:

• Self: Self's Free rent reporting service reports positive rental payments each month to Equifax, Experian and TransUnion. There's no credit history required and no hard pull. You can also add utility and cell phone payments by upgrading your subscription for $6.95 a month.

• SimpleBills: Offering a utility management service, SimpleBills allows you to add credit reporting to Equifax for $2.99/month as long as you pay your utilities through this service.

• eCredable: This service reports your utility payments to TransUnion for a monthly or annual fee, depending on the plan you choose.

Pay your utilities with a credit card

Many service companies allow you to pay bills — cell phone, internet, waste management even rent — with a credit card. While not exactly the same as reporting your utility bills to credit bureaus, on-time credit card payments can have a positive impact on your credit.^[2] However, paying bills with your credit card has a few potential downsides.

Credit card payments on utilities may come with convenience fees where you get charged extra by the vendor because you use a credit card for payment. In addition, if you spend a high percentage of your credit limit, you risk pushing your credit utilization ratio too high.^[3] If you aren’t sure you can pay the credit card balance in full each month, you'll likely accumulate interest charges and open yourself to credit card debt.

Weigh out the pros and cons before paying your bills with a credit card. While it can help pay your bills right away, it could impact your credit utilization ratio (CUR) depending on how much you owe on the bill. Your CUR impacts your amounts owed category, which makes up 30% of your FICOⓇ score. Your CUR offers creditors an idea of how you manage your finances and credit. Keeping balances on your credit cards close to your credit limits may indicate to lenders that you’re having a difficult time keeping up with your various financial obligations each month.^[3]

What bills are automatically reported to the credit bureaus?

The types of accounts that traditionally appear in credit reports include credit cards, mortgages, student loans and auto loans. For that reason, responsibly managing these types of accounts can help you build credit. Of course, making late payments, becoming delinquent, or having a high credit utilization rate on these accounts can hurt your credit score.^[4]

Other ways to build your credit

While reporting your utility payments to the credit bureaus may bump up your credit score, you may also find the following strategies useful for building credit.

Pay all your bills on time

Since payment history counts for over a third of your FICO® score, paying your bills on time forms the foundation of healthy credit. So do whatever you can to avoid late payments: create a budget, schedule reminders on your phone, set up automatic payments or pay bills in advance whenever you have a little extra cash. If you find yourself in danger of getting off track, you may want to get in touch with a non-profit credit counseling service or even contact your creditors to see if they will work with your situation.^[2]

Consider a credit builder loan

If you have poor credit or no credit at all, credit builder loans can help you grow your credit. Taking out a credit builder loan helps you to build credit history, but it works differently than traditional installment loans.

You don’t receive a lump sum upfront and pay it back in installments. Instead, you make your monthly payments, which are put into a certificate of deposit (CD) or savings account, and you get your lump sum (minus interest and fees) as soon as all of your payments are made. You can build money and credit at the same time because your payments get reported to the credit bureaus.

With the Self Credit Builder Account (CBA), choose a plan that fits your budget. As you pay your monthly payment, Self reports your payments to all three credit bureaus. After you make all your monthly payments, you get your money, minus interest and fees.

Consider a secured credit card

If you don’t have a good credit score, you might find it difficult to qualify for a credit card or other traditional types of credit. Individuals with bad credit may consider trying out a secured credit card. Designed to help users build credit, secured credit cards require a cash security deposit to open the account. As always, remember to read the fine print: look out for hidden fees or excessive interest charges and make sure the card issuer reports to all three of the major credit bureaus.^[5]

Become an authorized user

One of the simplest ways to get started on your credit journey — especially if you don’t have much of a credit history — is to become an authorized user on a friend’s or family member’s credit card. This strategy doesn’t tend to impact your credit score as much as opening your own account, but it may help if you can’t qualify on your own.

Just remember that your credit score may rise and fall along with the primary cardholder’s. If they have an account in good standing, low credit limit in relation to available credit and make on-time payments, being an authorized user could better your credit score. If they default on the account, however, your credit score may suffer alongside theirs.^[6]

Building your credit

As you research how to build credit, keep in mind that good credit always starts with following general good credit habits. If you pay your bills on time, keep your credit utilization low, get back on track after making late payments and pay down any remaining debt, you’ll help lay a solid foundation of good habits that may positively impact your credit score.

Disclaimer: FICO is a registered trademark of Fair Issac Corporation in the United States and other countries.

Sources

1. FICO. “FICO Fact: Do FICO Scores Consider Telco and Utility Data?” https://www.fico.com/blogs/fico-fact-do-fico-scores-consider-telco-and-utility-data. Accessed on August 4, 2022.
2. MyFICO. “What is Payment History?” https://www.myfico.com/credit-education/credit-scores/payment-history. Accessed on August 4, 2022.
3. MyFICO. “What Should My Credit Utilization Ratio Be?” https://www.myfico.com/credit-education/blog/credit-utilization-be. Accessed on August 4, 2022.
4. Equifax. “What is a Credit Report and What Does it Include?” https://www.equifax.com/personal/education/credit/report/what-is-a-credit-report-and-what-does-it-include. Accessed on August 4, 2022.
5. MyFICO. “What Should You Look for in a Secured Credit Card?” https://www.myfico.com/credit-education/blog/secured-credit-card-tips. Accessed on December 22, 2022.
6. Experian. “Credit Card Authorized User: What You Need to Know” https://www.experian.com/blogs/ask-experian/what-is-credit-card-authorized-user/. Accessed on August 5, 2022.

About the author

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.

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