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.
- 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.