When you apply for utilities it’s very likely that the provider will check your credit and a version of your credit scores called a Utility Score. If your credit is good (or better) then you’ll likely be enjoying warm winters, cool summers and bright evenings. If your credit is poor (or worse) then you’ll still enjoy the same things, but you’ll be a little lighter in the wallet because you’ll be asked to put a deposit down with the provider.
The question is: Will these accounts, and similar others, help you to establish, build or rebuild your credit and credit scores? The answer, unfortunately, is no. Utility companies and cellular phone providers do not report to the credit bureaus the same way your auto lender, credit card issuer and mortgage lender do. Some would even argue that utilities are not a form of credit, a theory with which I disagree because rather than lending you money they’re lending you gas, power or telephone services.
There are some utility and cell phone service providers that do report to the credit bureaus but it’s not uniform across the industries. Look at your own credit reports and you’ll see that most, if not all of your utilities are absent.
Rebuilding credit reports and scores requires, to some extent, the addition of new and good accounts to your credit files. And while you might pay your utility bills each and every month, this isn’t going to be reflected on your credit reports which means it can’t help your scores.
Missing payments or defaulting on one of those obligations will, however, eventually make it to your credit files. The utility or cellular provider will likely enlist the services of a debt collector to convince you to make your payments. And debt collectors DO report to the credit bureaus.
So, if your goal is to rebuild your credit reports and scores, you’re going to have to do so by entering into new credit agreements with companies that do report your account activity to the credit bureaus. Credit cards, auto loans, mortgages, personal loans, and student loans will all be reported by the lender –called a “data furnisher”– to the credit bureaus. This will require, most of the time, that you get into debt– which you might not want to do simply to rebuild your credit.
It's unwise to buy a house or a car simply to benefit your credit scores. It’s also unwise to open a bunch of credit cards to achieve the same benefit. However, having these accounts on your credit reports (and in good standing) will improve your scores. So, if you're in the market for a new loan or credit card anyway, shop away and watch your scores improve.
John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.
John Ulzheimer Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on Credit.com News & Advice.
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