Does Making the Minimum Payment On Your Credit Card Hurt Your Credit Score?

If you have a credit card, you might be only making the minimum payment, and so you might be wondering does making only the minimum payment affect or hurt your credit? This post provides you with everything you need to know about only making the minimum payment on your credit card.

Does Making Only The Minimum Payment Hurt Your Credit?

Making only the minimum payment on your credit card keeps your account in good standing, however, if your credit card balance substantially increases, this will increase your credit utilization, possibly lowering your credit score.

You should always strive to keep your credit utilization (how much of your available credit you're using) below 10% and never exceed 30%. If you use more than 30% of your available credit, you will notice a drop in your credit score.

Although making the minimum payment on your credit card keeps your account in good standing because it results in positive payment history being reported on your credit report, if you accumulate too much debt on your credit card, you could see a drop in your credit score.

So, making only the minimum payment can indirectly hurt your credit score. For your payment to positively affect your credit score, you should try to make more than the minimum payment to reduce your credit utilization.

So, what exactly does credit card minimum payment mean?

Your credit card minimum payment is the least amount of money that you are required to pay to keep your account in good standing. Typically, when you apply for a credit card, you sign a credit card agreement, agreeing to make the minimum payment on your credit card.

Failing to make the minimum payment on your credit card will result in a late payment being added to your account status, significantly lowering your credit score.

In fact, a single late payment can lower your credit score by 100 or more points. The higher your credit score, the more your credit score will drop.

Paying your credit card late lowers your credit score because your payment history makes up 35% of your credit score. If you make your payments on time, this factor will boost your credit score. On the flip side, missing payments can cause significant damage to your credit. So, make sure to make your payments on time even it means only making the minimum payment to prevent your account from being reported as late.

How Does Making Only The Minimum Payment Affect Your Credit Score?

Your payment history makes up 35% of your credit score, so making the minimum payment on your credit card actually helps you build positive payment history, which helps your credit score. That said, the amount of your minimum payment has no impact on your credit score, so whether your minimum payment is low ($25) or high ($500+), the impact on your credit is the same.

Increase in credit utilization rate

That said, if you accumulate too much debt on your credit card, the accumulation of debt could lower your credit score as it raises your credit utilization rate.

As a rule of thumb, you should use less than 10% of your available credit and never exceed 30% credit utilization.

If you utilize more than 30% of your available credit, you will notice a significant drop in your credit score.

This is so because your credit utilization makes up 30% of your credit score. So, if you don't pay down your credit card balances by paying more than the minimum payment, you could lower your credit score if the balance on your account continues to grow. This is especially true if you exceed 30% credit utilization.

One of the best things you can do to improve your credit score is to pay off your credit cards. This is so because you will be utilizing 0% of your available credit, which provides an excellent boost to your credit.

Paying more in interest

That said, if you're only making the minimum payment on your credit card, you should keep in mind that you'll be paying more in interest on the balance that you're carrying. This is so because interest charges apply to any balance that you leave on your credit card unless you have a credit card with a 0% introductory APR where you don't pay interest for a limited period of time.

Paying down your credit card debt will take significantly longer

Additionally, if you're only making the minimum payment on your credit card, it will take you significantly longer to pay off your card.

Should You Make a Payment Larger Than Your Minimum Payment?

Even though only making the minimum payment keeps your account in good standing, you should consider making more than the minimum payment on your credit card to reduce the balance on your account.

Reducing the balances on your credit card accounts is great for your credit score because your credit utilization (how much of your available credit you're using) makes up 30% of your credit score. The lower the balances on your credit cards, the better your credit score will be.

If you only make the minimum payment on your credit card, your credit card balance may continue to increase, lowering your credit score.

On the other hand, paying more than the minimum payment helps you keep your credit card balances as low as possible, helping your credit score by reducing your credit utilization.

Additionally, lenders like seeing that borrowers are making more than the minimum payment. They can see the amount of your last payment because it appears on your credit report. If a lender sees that you've made a payment that's larger than your minimum payment, they will view this positively when deciding whether to extend credit to you or lend you money.

That said, if you're working with a small budget or are going through tough financial times, making the minimum payment is perfectly fine as it will keep your account in good standing, which is extremely important to maintain a good credit score.

How to Make More Than the Minimum Payment On Your Credit Card?

You can make more than the minimum payment on your credit card by cutting back your spending on items that are not necessary and reallocating those funds to paying down your credit card. This allows you to pay down your credit card balances faster by making more than your minimum payment.

The second thing that you can do to pay more than the minimum payment is to freelance or get an additional job. This will help you allocate more money towards paying down the balances on your credit card to improve your credit score.

The third thing you can do to reduce your minimum payment and pay down your balances is to refrain from using your credit card until you've lowered the balance on it. This prevents you from adding to your credit card balance and helps your pay down your balance faster.

How is the Minimum Payment On Your Credit Card Calculated?

If you have a credit card balance below $1,000, you will probably see a minimum payment of $25. However, if you have a balance that exceeds $1,000, your minimum payment will likely be set at 2% of your balance. For example, if you have a $2,000 balance on your credit card, your credit card payment would be 2% of $2,000, which comes out to $40. In the event that you owe less than $25 on your credit card, the minimum payment will be set at the balance due. For example, if you only spent $15 on your credit card, your minimum payment will be set at $15.

Frequently Asked Questions (FAQs)

1. What happens to your credit score if you only make the minimum payment on your credit card?

Making the minimum payment on your credit card ensures that your account remains in good standing. However, only paying the minimum payment can increase your credit utilization since you're not significantly paying down your balance, increasing your credit utilization. An increase in credit utilization can lower your credit score, especially if you've exceeded 30% credit utilization.

2. Is it better to only make the minimum payment or pay your card in full?

It is better for your credit score to pay your credit card in full. Making a full payment results in a 0% credit utilization on your account, possibly raising your credit score.

3. What happens if you only pay the minimum payment on your credit card?

If you only make the minimum payment, your account is reported as paid on time. However, you will likely continue to carry a balance. If your credit card balance increases too much, your credit score could drop.

4. Does paying more than the minimum payment help your credit score?

Although merely paying more than the minimum payment does not boost your credit score. If you pay down a significant portion of your credit card balance, you should notice an improvement in your credit score.


What Happens To Medical Bills That Go To Collections?

If you have failed to pay your medical bills, you might be wondering what happens to unpaid medical bills that are sent to collections. This post provides you with everything you need to know as to medical bills that are sent to collections.

What Happens to Medical Bills That Are Sent to Collections?

If your unpaid medical bills are sent to collections, the collection agency that purchased the debt will attempt to collect the debt from you. If that fails, the collection agency will report the unpaid debt to the credit reporting bureaus. If the debt is reported to the credit bureaus, it will likely appear on your credit report, lowering your credit score.

A single collection account can lower your credit score by 100 or more points. The higher your credit score, the more your credit score will drop. If a collection account appears on your credit report, it will remain on there for 7 years from the date you missed your first payment on your medical debt.

After the 7 year period, the collection account will be automatically removed from your credit report. If the collection account is not removed after the 7 year period, you can file a dispute with the credit bureau showing the account to have it removed from your credit report.

You should keep in mind that paying off a collection account after it appears on your credit report will not remove it from your credit report. In fact, a paid and unpaid collection account have the same negative impact on your credit score. The only difference is that paying it will mark the account as paid.

The only way to remove a collection account is to successfully dispute it or negotiate with the collection agency to remove the collection account in exchange for payment of the outstanding amount that's due.

So, if you have received a collection notice from a collection agency, it's best not to ignore it because if the outstanding debt remains unpaid, it will likely result in a collection account being added to your credit report.

Do Medical Bills That Are Sent To Collections Affect Your Credit Score?

Medical bills that are sent to collection could affect your credit score if the collection agency adds a collection account to your credit report. Again, a collection account can cause a significant drop in your credit score. So, it's best to negotiate with a collection agency before they report the debt to the credit reporting bureaus.

A single collection account can cause your credit score to drop by 100 or more points. The better your credit score, the bigger the drop will be.

If your past-due medical bills still have not been sent to collections, it's best to contact your health care provider and ask them about options to pay off the money that's due.

Some providers may be willing to assist you, providing you with huge discounts if you agree to pay the balance in full. If you cannot pay the balance in full, you should inquire about payment plans. Many healthcare providers will be willing to allow you to pay for medical care in installments, making it manageable for you to pay off medical debt.

What Should You Do If Past Due Medical Bills Are Sent To Collections?

If your past-due medical debt is sent to collections, the first thing that you should do is to contact the collection agency and try to stop them from reporting the collection account to the credit bureaus. You can do so by paying off the medical bills or asking to be placed on a payment plan.

If you owe a large amount of money, you should try negotiating with the collection agency. Collection agencies often purchase medical debt for cents on the dollar, so they have a lot of wiggle room when it comes to negotiating the amount you owe them.

If a collection account has already been added to your credit report, one tactic that you can use is to offer them payment in exchange for the removal of the collection account from your credit report. Some collection agencies will be willing to work with you by accepting payment in exchange for the removal of the collection account from your credit report.

If you successfully negotiated the removal of the collection account in exchange for payment, you should review a copy of your credit report to verify whether the account has been removed from your credit report.

If the account is not removed, you should file a dispute with the credit reporting bureaus to have it removed from your credit report.

When you file a dispute, provide the credit bureaus with evidence that you've negotiated the removal of the collection account from your credit report in exchange for payment. The dispute process could take up to 30 days, but oftentimes it's completed within just a few days.

How Long Does a Collection Account For Medical Bills Remain On Your Credit Report?

A collection account that appears on your credit report as a result of failing to pay medical bills will remain on your credit report for 7 years from the date you missed your medical bill payment. After the 7 year period, the collection account will automatically be removed from your credit report. If you want to remove a collection account from your credit report, you should file a dispute with the credit reporting bureau to have it removed. That said, to successfully dispute a collection account, the account must contain an error or have been added to your credit report in error. Valid collection accounts cannot be removed from your credit report via the dispute process.

How To Improve Your Credit After Having a Collection Account Added To Your Credit Report?

If you've had a collection account added to your credit report as a result of unpaid medical bills, here are some things that you should do to improve your credit score.

1. Make Payments On Your Accounts

If you want to improve your credit after having a collections account added to your credit, you should make all of your credit card and loan payments on time. Your payment history accounts for 35% of your credit score, so making timely payments will provide a nice boost to your credit score. Missing even a single payment on a credit card or loan can significantly lower your credit score. So, make sure to make your payments on time to avoid damage to your credit.

2. Reduce the Balances On Your Credit Cards

Another way to quickly improve your credit is to pay down the balances on your credit cards. Your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. So, paying down your credit card balances can improve your credit for this reason.

3. Keep Old Accounts Open

Your average account age makes up 15% of your credit score. The older your accounts, the better your credit score will be. So, keeping old accounts open even if you rarely use them, can be a great way to improve your credit.

4. Refrain From Submitting Too Many Credit Applications Within a Short Period of Time

To improve your credit, you should refrain from submitting too many credit card and loan applications within a short period of time. This is so because new credit applications make up 10% of your credit score. Every time you apply for a credit card or loan, a hard inquiry is placed on your credit report when the lender reviews your credit report. The fewer the hard inquiries on your credit report, the better this factor impacts your credit score.

Frequently Asked Questions (FAQs)

1. What happens if medical bills go to collections?

If your unpaid medical bills go to collections, a collection agency will attempt to collect the debt from you. If the collection agency fails to do so, it will add a collection account to your credit report, significantly lowering your credit score. A single collection account that's added to your credit report can lower your credit score by 100 or more points.

2. What Happens to Medical Bills That Are Sent to Collections?

Medical bills that are sent to collections can result in a collection account being added to your credit report. A collection account can significantly lower your credit score. Also, the collection agency will likely relentlessly call you and send you letter trying to collect the outstanding medical bill debt from you.

4. Do Medical Bills in Collections Every Go Away?

If unpaid medical bills result in a collection account being added to your credit report, the collection account will remain on your credit report for 7 years from the date you failed to pay your medical bills. After the 7 year period, the collections account will automatically be removed from your credit report. Paying a collection account will not remove it from your credit report.

4. How do you get medical bills out of collections?

You can usually get bills out of collections by paying them or paying your healthcare provider. That said, if a collection account has been added to your credit report, paying the collection account will not remove it from your credit report. If there is a collection account, you should negotiate with the collection agency to pay in exchange for the removal of the collection account from your credit report.


Does Your Employer Appear On Your Credit Report?

If you're wondering whether your employer appears on your credit report, you've come to the right place as we will provide you with everything you need to know about your employment appearing on your credit report.

Does Your Employer Appear On Your Credit Report?

Yes, your current and former employers can appear on your credit report. The employer information that appears on your credit report is gained through the information that you provided to lenders on credit applications.

For example, when you submit a credit application to take out a personal loan or obtain a car loan, you're required to fill out a credit application that asks for your employer information. When you enter your employer information, that information can be reported to the credit bureaus. The credit bureaus will then add your employer information to your credit report.

CSP Pro Tip: Simply working for an employer will not cause them to appear on your credit report. An employer will only appear on your credit report if you list them on a credit application, such as a credit card application or loan application.

Your credit report may contain both your past and current employer. The employer information that shows on your credit report depends on the employer information you provided on credit applications.

For example, if you submitted a credit card application, home mortgage application, personal loan application, or any other type of credit application where you listed your employer, that information could have been provided by the lender to the credit reporting bureaus, appearing on your credit report.

Your employer information is not submitted by your employers to the credit reporting bureaus.

Typically, your employer information is added to the credit application to verify your employment and income so that the lender can assess your creditworthiness in determining whether to extend credit to you or lend you money.

After you fill out a credit application, your lender submits the information to the credit reporting bureaus (Experian, Transunion, and Equifax). Once the credit bureaus have the information, they will include your employer information on your credit report.

That said, although lenders are not required to send the name of your employer to the credit bureaus, they often do send that information. Once it is sent, it will likely appear on your credit report.

That said, although your employer information may appear on your credit report, your income and your job position will not appear on your credit report. Only the name of the employer will be listed on your credit report.

Does The Employer Information On Your Credit Report Affect Your Credit Score?

The employer information that may appear on your credit report has no effect on your credit score. This is so because your credit score does not factor in your employment status or employer information when calculating your credit score. So, you could have no employer information on your credit report or the best employer on your credit report, and there would be no effect on your credit score.

Credit scores only take into account how you've handled repayment of debt in the past and in the present. Your employer does little in terms of demonstrating how you are likely to handle credit, and so it does not impact your credit score.

So, you may be asking yourself: why is your employer even included in your credit report?

Your employer is included in your credit report to assist lenders and creditors with verifying your identity. For example, if you are applying for a personal loan, your lender may ask you for your previous employers in order to verify your identity and process your personal loan application.

How Can You Update the Employer Information On Your Credit Report?

The only way to update the employer information on your credit report is to submit a credit application that contains your new employer information. Even then, submitting your new employer information via credit application will not remove your older employer information from your credit report. This is so because your credit report shows a list of former and current employers that were named on your credit application. Submitting a new employer will not remove old employers from your credit report.

Nevertheless, don't worry too much about employer information on your credit report because your employer information has no effect on your credit score.

That said, if the wrong employer information appears on your credit report, you can file a dispute to have the wrong employer information removed from your credit report.

After you file a credit dispute, the credit reporting bureaus will conduct an investigation to determine whether the employer information furnished to them is indeed accurate.

If the investigation reveals that there is an error in the information appearing on your credit report, they will remove it from your credit report.

However, if your employer information is valid, it will not be removed from your credit report and will remain on there.

Do Past Employers Appear On Your Credit Report?

If you've listed your past employers on credit applications, your past employers may appear on your credit report. It all depends on whether they were listed on a credit application and whether your lender furnished your employer information to the credit reporting bureaus. If they did furnish the information, it will appear on your credit report.

That said, not all of your past employers will appear on your credit report, the only ones that will appear are ones you listed on a credit application.

Does Your Current Employer Appear On Your Credit Report?

Your current employer could appear on your credit report only if you listed them as your employer on a credit application. Simply working for an employer will not add them to your credit report. You must list them on a credit application for them to appear on your credit report.

For example, if you work at Microsoft and you haven't applied for credit while working with them. They will not appear on your credit report. However, if while working at Amazon, you applied for a car loan and listed them as your employer, they will appear on your credit report.

How to Check Which Employers Are Listed On Your Credit Report?

You can check which employers are listed on your credit report by reviewing all three of your credit reports. Typically, your employers will be listed under the employer information section of your credit report. We suggest that you check all three credit reports because the information in each of your credit reports is different. This is so because some lenders choose to report to one or two of the credit reporting bureaus. So, to see all employers that are reported on your credit reports, you should review all three of your credit reports from Experian, Transunion, and Equifax.

The Bottom Line

At this point, it should be apparent that your employer information could appear on your credit report if you listed the employer on a credit application. This is so because your lender may have provided your employer information to the credit bureaus, which then added the information to your credit report. If you have any general questions or comments, please feel free to leave them in the comments section below.


Can You Use a Personal Loan To Buy a House?

If you want to buy a house, you may be wondering whether it's possible to take out a personal loan and use the funds as a down payment to buy a house? We will provide you with everything you need to know about using personal loans to buy a home.

Can You Use a Personal Loan To Buy a House?

Although it may be possible to buy a home using a personal loan as a down payment, many mortgage lenders do not allow personal loan funds to be used as a down payment for a home. This is so because using a personal loan as a down payment raises red flags for lenders as to your ability to afford the home you're seeking to buy.

Don't plan on hiding the source of funding for your down payment as you are required to disclose the source of your down payment by providing bank statements that show the source of your money.

Using a personal loan as a downpayment should be a last resort option and should only be used if you're confident that you can pay back the personal loan in a short period of time.

Before using a personal loan as a downpayment to buy a house, you should consider your ability to make payments on the personal loan as well as the payment on your home mortgage. Personal loans are typically expensive and must be paid off within a short period of time, such as two or five years vs the thirty years you have to pay off a home loan.

Since personal loans must be paid off in a shorter period of time, they typically require higher monthly payments than mortgages where payments are significantly lower since they're spread across a lengthier time period.

Additionally, personal loans charge a high interest rate since there is nothing securing the loan. So, lenders charge more interest since they're taking a bigger risk by lending you the money, making them a bad option to use to buy a home.

How To Get a Personal Loan To Buy a Home?

While some lenders will not allow you to use personal loan funds to buy a home, and we discourage their use to buy a house, if you are dead set on using a personal loan as a downpayment to buy a home, you can shop around for personal loans. There are a ton of reputable lenders that offer you the ability to take out a personal loan.

Shop around for the best loan terms and interest rates as they vary greatly among the available personal loan lenders. Most major banks provide personal loans, with credit unions and online lenders often offering the best and most competitive interest rates on such loans.

You should look for a lender that charges the lowest interest rates in order to get the lowest monthly payments to make paying off your personal loan and mortgage as manageable as possible.

Before even applying for a personal loan, you should consider whether your income is enough to make payments on your existing debts, your personal loan, and your mortgage.

If you can afford to comfortably make all of your payments on time, then it makes sense to proceed. However, if your income is insufficient to do so, you should consider holding off on buying your home.

Consider Alternatives To Using a Personal Loan To Buy a Home

If you're considering taking out a personal loan to buy a home, here are some alternatives that you should consider before applying for a personal loan.

Alternative #1: Use an FHA Loan

If you don't have enough funds for a 20% downpayment on a home, you should consider an FHA Loan. With an FHA home loan, you're only required to make a downpayment of only 3.5% so long as you have a credit score of 580 or higher. So, this could be a great alternative to taking out a personal loan to buy a house. That said, you should keep in mind that if your downpayment is less than 10% of the home's price, you will be required to buy mortgage insurance, protecting the lender in the event that you default on the loan. That said, if you're interested in an FHA loan, you should check the entire list of requirements for qualifying for such a home loan.

Alternative #2: Consider a VA Loan

If you're a veteran and you're looking for options to buy a home, you should consider taking out a VA loan. VA loans are available to veterans, those on active duty, or an eligible surviving spouse of a veteran. These loans are very affordable, require little in terms of downpayment, and do not require mortgage insurance as do FHA Loans. So, consider them if you meet the requirements for them.

Alternative #3: Consider an Alternative Lender

If you want to take out a mortgage to buy a home and are having difficulty securing sufficient funds for a down payment, you should consider seeking alternative lenders that require a low or no downpayment. There are many banks out there that offer zero or low downpayments for mortgages. Some of these lenders include Bank of America, Quicken Loans, SoFi, Suntrust, and PNC Mortgage. That said, even though you might qualify for a low downpayment mortgage, you should keep in mind that such options will be more expensive since you're putting little money towards buying a home. So, make sure you have the funds necessary to comfortably afford your monthly payment.

Alternative #4: Take a Loan From Family or Close Friends

If you want money for a downpayment on a new home, you should consider asking family or close friends for money for a downpayment instead of taking out a personal loan. Ask someone close like your dad, mom, brother, sister, or close friend for money. It may be tricky asking them for money, but it beats using a personal loan. When you take money from family or friends, paying off the loan is easier than sticking to a strict monthly schedule that comes with personal loans. You have more freedom paying it off.

Alternative #5: Consider a Downpayment Assistance Program

Downpayment assistance programs are a great alternative to using personal loans to buy a home. DPAs provide homebuyers with grants or low-interest loans to assist them with buying a home. The United States has over 2000 programs to help homebuyers afford to buy a home. Search for a down payment assistance program in your State and you will be surprised with the options that may be available to you.

Alternative #6: Save Up Money

If you are in no rush to buy a home, it may be worth it to keep working and save up some money to buy a home. If you are married, it could be worth it to ask your significant other to work and help you save money to buy a home. Also, if you have a lot of stuff lying around, try selling it to save some money for a home. If you have any skills, you should consider freelancing to earn some extra income to buy a home. The internet is full of opportunities for you to earn some extra money to save for the downpayment for a home.

Does Taking Out a Personal Loan To Buy a Home Affect Your Credit?

Before taking out a personal loan to buy a house, you should consider the impact that it has on your credit. If you want to buy a home, you should do everything possible to maintain the best credit score for when you apply for a mortgage. This is so because your credit score impacts whether you'll be approved for a loan, the terms of the loan, and the interest rate on the loan.

Taking out a personal loan does affect your credit. First, when you apply for a personal loan, a hard inquiry is placed on your credit report, slightly lowering your credit score. Although a single hard inquiry does not have a significant impact on your credit score, if you submit too many personal loan applications, you could cause a significant drop in your credit score due to the hard inquiries that will be placed on your credit report.

Second, when taking out a personal loan, you should ensure that you're able to make the monthly payments on the loan because missing even a single payment on your personal loan may result in a late payment notation added to your credit report. Having a late payment on your credit report could make it very difficult to be approved for a home loan.

So, these are some things to consider before applying for a personal loan to use as a down payment for a home.

Why Using a Personal Loan as a Downpayment For a Home May Be a Bad Idea

Here are some of the disadvantages of using a personal loan as a downpayment for a new home:

Disadvantage #1: Limits Your Loan Options

The first disadvantage of taking out a personal loan to use as a downpayment for a home is that it limits your loan options as some lenders will not allow you to use personal loan funds as a downpayment. Lenders will ask you about the source of the money and lying on the application could get you denied.

Disadvantage #2: There Are Other Options

The second disadvantage is that there are less expensive alternatives available to you instead of taking out a high interest rate personal loan to use as a downpayment. Most people will tell you that you need at least a 20% downpayment to buy a home, but the reality is that you may be able to buy a home with as little as a 3% downpayment.

Disadvantage #3: Lower Credit Score

Taking out a personal loan right before you buy a home can be a bad idea as it may lower your credit score because of the hard inquiry that's placed on your credit report. Also, missing a payment on a personal loan could cause significant damage to your credit. This is something that you want to avoid right before you apply for a home mortgage.

Disadvantage #4: It Makes Buying a Home Expensive

Personal loans must be repaid within a very short period of time, such as 1, 2, 3, or 5 years. So, your payments will be very high, especially if you include the amount of money that you need to pay for your mortgage. You should only use a personal loan as a last resort, and if you're sure that you can handle the mortgage and personal loan payment.

The Bottom Line

Although some lenders may allow you to use a personal loan as a downpayment to buy a house, you should avoid using them because they are expensive and some lenders will not be willing to work with you. If you have any general questions or comments, please feel free to leave them in the comments section below.


Does Applying For a Mortgage Affect Your Credit Score?

If you are thinking about applying for a mortgage, you may be wondering: does applying for a mortgage affect your credit score? This post provides you with everything you need to know about how applying for a mortgage affects your credit score.

Does Applying For a Mortgage Affect Your Credit Score?

Yes, applying for a mortgage can lower your credit score because each time you submit a mortgage application, a hard inquiry is added to your credit report when a lender reviews a copy of your credit report. Although a single hard inquiry will slightly lower your credit score, accumulating too many hard inquiries within a short period of time can significantly lower your credit score.

That said, when shopping for a mortgage, credit scoring models treat hard inquiries made within a 14 to 45 day period while shopping for a mortgage as a single hard inquiry.

So, to avoid multiple hard inquiries from negatively affecting your credit score, you should do your mortgage shopping within a 14 day period to ensure that all mortgage-related hard inquiries count as only a single hard inquiry.

Hard inquiries are not negative marks, but they can lower your credit score. A single had inquiry can lower your credit score by 3 to 5 points, but multiple hard inquiries within a short period of time can significantly lower your credit score because they should lenders that you're seeking too much new credit within a short period of time, which can be indicative of financial troubles.

Hard inquiries affect your credit score because credit scoring models take into account the number of hard inquiries you have on your credit report. As a rule of thumb, you should have no more than 2 to 3 hard inquiries on your credit report. Anything more and you could see a drop in your credit score.

Even though several hard inquiries may appear on your credit report when shopping for a mortgage, the credit scoring models will consider them as a single hard inquiry when calculating your credit score.

That said, when applying for a mortgage, it's okay to rack up several hard inquiries so long as you make them within a 14-day window so that all hard inquiries gained as a result of shopping for a mortgage count as a single hard inquiry.

Newer credit scoring models provide a 45-day window, but stay on the safe side and conduct your mortgage shopping within the 14-day window just in case your lender relies on older credit scoring models that use the 14-day window.

That said, even if takes you longer than 14 to 45 days to look for the best mortgage, the temporary impact on your credit score may be well worth the savings you'll gain by continuing to shop for the mortgage with the best terms and interest rate.

How Long Do Hard Inquiries Remain On Your Credit Report For?

A hard inquiry is placed on your credit report when a lender reviews a copy of your credit report after you've applied for a credit card, loan, or mortgage. Can cause a small drop in your credit score, but that drop is temporary in nature. In fact, hard inquiries only remain on your credit report for 2 years from the date your lender reviews a copy of your credit report. After the 2 year period, the hard inquiry will be automatically removed from your credit report. That said, experts agree that the effect that a hard inquiry has on your credit score only lasts for 12 months. After 12 months, a hard inquiry will no longer affect your credit score. After 2 years, it will be automatically removed from your credit report permanently.

Consider Mortgage Prequalification To Avoid Hard Inquiries

If you want to avoid having any hard inquiries added to your credit report, you should consider pre-qualifying for a mortgage. According to Bank of America, mortgage prequalification is an early step in the process of buying a home. To perform a prequalification, you must provide your lender with basic information about yourself and your financial situation.

The lender then performs a soft pull of your credit report to review your credit report. Soft pulls, more appropriately known as soft credit checks do not affect your credit score as do hard inquiries. So, if you want to avoid having hard inquiries added to your credit report, you can opt for mortgage prequalification instead.

Mortgage prequalification should provide you with very helpful information, such as whether you're likely to qualify for a mortgage, the types of mortgages you qualify for, and the maximum amount of money that the lender will allow you to borrow.

If you find that the mortgage terms, interest rate, and the amount you're allowed to borrow work for you, you can go ahead and submit a full mortgage application. When you submit the full application, only then will a hard inquiry be placed on your credit report.

Also, prequalification helps you narrow down your home search. For example, if you only pre-qualify for a $400,000 mortgage, you'll know that you shouldn't be looking at $700,000 homes.

So, if you're thinking about buying a home and you do not want too many hard inquiries being added to your credit report, you should definitely consider mortgage prequalification before submitting full fledged mortgage applications that will undoubtedly result in hard inquiries being placed on your credit report as lenders review your credit report.

Does a Mortgage Affect Your Credit Score?

Having a mortgage can greatly affect your credit score. If you make your mortgage on time, you can build excellent credit. This is so because your payment history makes up 35% of your credit score. So, making timely payments on your mortgage will boost your credit score.

Additionally, opening a mortgage account can improve your credit mix. Your credit mix makes up 10% of your credit score, and it rewards persons who have a diverse mix of credit accounts with a higher credit score. Opening a variety of different accounts, such as credit cards, car loans, mortgages, and student loans will increase the diversity of your accounts, contributing to a higher credit score.

That said, although a mortgage can increase your credit score in the long run, when you first apply for a mortgage, you could see a small but temporary drop in your credit score. This small drop is caused by the hard inquiry that is placed on your credit report when a lender reviews a copy of your credit report.

That said, the impact that a hard inquiry has on your credit report is temporary. In fact, after 12 months, a hard inquiry will no longer affect your credit score, and it will be removed after 2 years from the date it was added to your credit report.

If you've shopped around for a mortgage, racking up multiple hard inquiries. The hard inquiries that are added to your credit report while you shop for a mortgage will all be counted as a single inquiry when calculating your credit score. That said, for them to be counted as a single hard inquiry the inquiries must be made within a 14 to 45-day window.

What Are Some Things That You Should and Should Not Do When You Are Trying To Qualify For a Mortgage?

Here are some things that you should and should not do when you foresee that you are going to apply for a mortgage:

1. Continue Making Your Credit Card and Loan Payments On Time

When applying for a mortgage, you should make sure to continue making your credit card and loan payments on time as missing even a single payment can cause significant damage to your credit. Also, having a recent late payment on your credit report will make it difficult for you to qualify for a mortgage with reasonable terms. So, make sure to continue making all of your payments on time.

2. Don't Apply For New Credit Cards and Loans

If you know that you will be applying for a mortgage in the foreseeable future, you should refrain from applying for new credit cards or loans because it could show that you're seeking new credit, which is not good when applying for a mortgage. Also, applying for a credit card or loan could lower your credit score because of the hard inquiry that's added to your credit report when a lender reviews a copy of your credit report. So, don't apply for new credit cards or loans for the best chances of being approved and to qualify for good terms and interest rate.

3. Keep Old Accounts in Good Standing Open

If you have an old credit card that is in good standing, you should not close such an account prior to applying for a mortgage. This is so because old accounts can actually improve your credit score because the credit scoring models take into account your account age. The older your accounts, the better your credit score will be. Also, oftentimes, closing a credit card could actually lower your credit score. So, to avoid this, do not close any accounts prior to being approved for a mortgage.

4. Reduce Your Credit Card Balances

If you want to boost your credit score prior to applying for a mortgage, you should consider paying down your credit card balance. Paying down your credit card balances can significantly improve your credit score especially if you're using too much of your available credit. Your credit utilization makes up 30% of your credit score, so the more debt you have on your credit cards, the lower your credit score will be. So, pay down your credit card balances to improve your credit score prior to applying for a mortgage.

Frequently Asked Questions (FAQs)

1. Do mortgage applications affect your credit score?

Yes, mortgage applications can affect your credit score. In fact they can lower your credit score by 10 to 40 points, depending on how many applications you submit. On average, it takes approximately 12 months for your credit score to recover after submitting mortgage applications.

2. How much does your credit score drop when applying for a mortgage?

Your credit score can drop by 10 to 40 points when applying for a mortgage. That said, most applicants saw an average drop of 15 points.

3. Does mortgage prequalification affect your credit score?

No, mortgage prequalification does not affect your credit score so long as your lender conducts a soft credit check. A soft credit check does not impact your credit score and it's commonly used for performing mortgage prequalification. That said, ask your lender whether their prequalification results in a soft inquiry or hard inquiry.

4. When should you apply for a mortgage to buy a home?

You should apply for a mortgage to buy a home when you have the necessary funds to place as a downpayment for your new home.


Does a Mortgage Count As Debt?

If you have a mortgage on your home, you might be wondering whether a mortgage counts as debt. This post provides an in-depth explanation as to whether having a mortgage constitutes having debt.

Does a Mortgage Count As Debt?

Yes, having a mortgage counts as debt because you're borrowing money from a financial institution to buy a home. Borrowing money to buy a home means that you're indebted to a financial institution for repayment of money, which technically means that you're in debt. When calculating your debt to income (DTI) ratio, you should include your monthly mortgage payment as part of your debt.

So, you might be wondering, why does having a mortgage count as debt?

A mortgage counts as debt because you're essentially borrowing money from another party to buy your home, which makes mortgages fall under the definition of debt.

That said, mortgage debt is considered by many to be a good type of debt because you need a place to live, so borrowing money to buy a home is encouraged by many experts. It's better than renting an apartment or home because rent money is permanently lost whereas a portion of the money that you pay for your mortgage goes toward paying off your home, so it's not completely lost.

Even though a mortgage counts as debt, it's considered as good debt because your home can appreciate in value, adding to your wealth. If you're planning to keep your home for a long time, chances are that you will be able to profit from the appreciation of the value of your home.

Additionally, the interest rates on mortgages are significantly lower than those for credit cards and personal loans, making mortgages a great option for those who wish to buy a home. For example, it's totally possible for a person to qualify for a 30-year mortgage at an interest rate of only 3%. On the other hand, if you take out a personal loan, your interest rate could range anywhere from 7% to 30%, making personal loans significantly more expensive than a mortgage.

What Are Some Other Items That Count as Debt?

Now that you know that your mortgage counts as debt, here are some other items that count as debt:

  1. Amounts owed on credit cards
  2. Auto loans
  3. Student loans
  4. Personal loans
  5. Any other types of debt that show up on your credit report

How to Calculate Your Debt To Income Ratio (DTI ratio)?

Calculating your debt-to-income ratio is fairly easy. To calculate it, you must add up all of your monthly debt payments and divide the total by your gross monthly income. Your gross monthly income refers to the amount of money your earn per month before deducting taxes.

For example, if you have total debt payments of $3,000 and you make $7,500 per month, your DTI can be calculated by dividing $3,000 by $7,500, giving you a DTI of 40%.

To calculate your monthly debt payments, you should include your credit card payments, mortgage payments, auto loan payments, student loan payments, child support payments, and any other type of debt payments.

So, you might be wondering, why does your debt to income ratio matter?

Your debt to income ratio matters because experts agree that people with a lower debt to income ratio are less likely to run into trouble when making their monthly payments on time. Typically, to be approved for a mortgage, the highest debt to income ratio that lenders will be willing to accept is a 43% DTI. If you have a DTI that is higher than 43%, you may still qualify for a mortgage but it will be more difficult to do so.

What counts as income for the purposes of your debt to income ratio?

  1. Salary
  2. Wages
  3. Tips
  4. Bonus payments
  5. Social security income
  6. Child support income
  7. Pension income
  8. Any other type of income

Can You Consider Yourself As Debt Free With a Mortgage?

No, you cannot consider yourself debt-free if you have a mortgage because having a mortgage by definition means that you owe another party money to buy your home. After paying off your mortgage, you can consider yourself debt-free.

Frequently Asked Questions (FAQs)

1. Is a mortgage classified as debt?

Yes, a mortgage is classified as debt because it falls under the definition of debt, which is owing money to another party. So, if you're calculating your debt to income ratio, you should include your monthly mortgage payment when performing your calculations.

2. How does debt affect qualifying for a mortgage?

Typically, the more debt that you have, the less money you will be able to borrow. That said, mortgage lenders look at all of your finances, including assets, debts, and income when determining whether to approve you for a mortgage and the amount you may be approved for.

3. Should you pay off your debts before buying a house?

Paying off your debts can be great, especially before taking out a mortgage because it can reduce your debt to income ratio. Your debt to income ratio is considered by lenders when you apply for a mortgage. The higher your DTI, the less likely it is that you'll be approved for a mortgage, and the lower the amount you could be approved to borrow.

4. Can I buy a house if I have a lot of debt?

Yes, you can still buy a house if you have a lot of debt, however, if your DTI is too high you may either be denied a mortgage or you might only be approved for an amount lower than what you need to buy the home you're considering.


Do Taxes Affect Your Credit?

If you're like most Americans, you probably pay your taxes every year. So, you might be wondering does paying your taxes build credit, or does failing to pay taxes affect your credit score? This post provides you with everything you need to know about how paying your taxes or failing to pay your taxes affects your credit.

Does Paying Taxes Build Credit?

No, paying taxes does not build credit because your tax payments are not reported to the credit reporting bureaus. Therefore, paying your taxes on time will have no effect on your credit score. Also, failing to pay your taxes on time has no direct impact on your credit score because your payments are not reported to the credit reporting bureaus.

Although paying taxes has no direct impact on your credit score, it could have an indirect impact on your credit score.

For example, if you are having difficulty paying for your taxes out of pocket, and you use your credit card to make your tax payment, if you don't pay the minimum payment on your credit card when its due, a late payment notation is added to your credit report, significantly lowering your credit score.

Late Payment Marks

Late payments are negative marks that are added to your accounts when you fail to pay the minimum payment on your credit card. If a late payment mark is added to your credit report, it could cause a significant drop in your credit score.

Late payments remain on your credit report for 7 years from the date you missed your payment. After the 7 year period, the late payment mark is automatically removed from your credit report.

So, if you do decide to use your credit card to pay your taxes, you should make sure to make at least the minimum payment on time to avoid your credit card payment from being reported as late.

If you have the money in your checking account, you should consider paying directly from your checking account to avoid the convenience fees that the IRS charges for using a credit card.

Credit Card Interest

Not only will you be liable for paying the convenience fees, but if you don't pay off your credit card at the end of your billing cycle, your card issuer will charge you interest on the money you've borrowed using your credit card.

Credit card interest rates are very high, ranging from 15% to 30% for some credit cards, making them very expensive to use for paying tax bills. So, you should consider the amount of interest you will have to pay on the balance before using your credit card to pay your taxes.

Credit Utilization

Another thing to keep in mind when using a credit card is that charging your taxes to your credit card can potentially increase your credit utilization. Your credit utilization refers to how much of your available credit you're using. The higher your credit utilization, the lower your credit score will be.

If you plan on immediately paying off your credit card, this isn't something you should spend too much time thinking about. But, if you plan on leaving a balance on your credit card, you should consider how much of your available credit you will be utilizing.

As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30% utilization. If you exceed 30% credit utilization, you will notice a significant drop in your credit score.

For example, if you have a $10,000 credit limit, and you use your credit card to pay a tax bill of $4,500, your credit utilization would be 45%, which places you above the 30% credit utilization, causing your credit score to drop.

So, consider your credit utilization before using a credit card to pay your taxes.

Does Failing to Pay Your Taxes Affect Your Credit Score?

Although failing to make your tax payment does not directly hurt your credit, the U.S Government is capable of selling the unpaid taxes you owe to a private collection agency. The collection agency can cause significant damage to your credit by placing a collection account on your credit report.

Collection Account

Collection accounts are very negative items that can appear on your credit report and cause your credit score to drop by 100 or more points. In fact, the higher your credit score, the bigger the drop you will experience as a result of a collection account being added to your credit report.

If a collection account is added to your credit report, it can remain on it for 7 years from the date you failed to make your tax payment. When a collection is first added to your credit report it will have a huge negative effect on your credit score. However, as the collection account ages, its impact on your credit score will lessen until it's ultimately removed from your credit report.

Paying a collection account after it has been added to your credit report will not remove it from your credit report. So, to avoid having a collection account added to your credit report, you should make your tax payment on time.

Property Tax Lien

In addition to a collection account being added to your credit report, if you fail to pay your taxes on time, the IRS can place a lien on your property. Although IRS Tax Liens no longer appear on your credit report, if the IRS places a lien on your property, it could sell your property and use the proceeds to recover some or all of the money that you owe them.

Does Paying Your Taxes Late Affect Your Credit Score?

No, paying your taxes late does not affect your credit score because your tax payments are not reported to the credit reporting bureaus. Also, any tax liens that result from late tax payments no longer appear on your credit report, therefore, they have no impact on your credit score.

That said, paying your taxes late may result in the addition of a collection account to your credit report, indirectly affecting your credit score.

Collection accounts are negative items that are added to your credit report whenever a collection agency takes over an unpaid debt of yours. Collection accounts remain on your credit report for 7 years and they have a substantial negative impact on your credit score.

To avoid having a collection account from being added to your credit report, pay your taxes on time. This will help you avoid the IRS commission a collection agency to collect the outstanding amount that's due by adding a collection account to your credit report.

What Are Some Other Consequences For Failing To Pay Your Taxes?

If you fail to pay your taxes on time, the IRS can place a tax lien on your property, allowing it to sell your property and use the proceeds of the sale to recover some or all of the money that you owe them. So, to avoid a tax lien, you should make your tax payments on time. If you don't have the cash to make the entire payment, ask the IRS about installment payments, where you make a certain number of payments until you've paid off the balance.

Another consequence that we discussed in much detail is that the IRS can task a collection agency to recover the outstanding amount from you. Once a collection agency is tasked, it will attempt to collect the outstanding amount from you.

In the process of collecting the outstanding taxes, the collection agency may add a collection account to your credit report, significantly lowering your credit score.

If a collection account is added to your credit report, it will lower your score and remain on your credit report for 7 years from the date you missed your tax payment. After the 7 year period, the collection account will automatically be removed from your credit report.

In addition to a lien being placed on your property and a collection account added to your credit report, failing to pay your taxes on time can result in the IRS assessing penalties and additional fees on your account.

Frequently Asked Questions (FAQs)

1. Do taxes affect your credit score?

No, taxes do not affect your credit score because your payments or lack thereof are not reported to the credit reporting bureaus. So, whether you pay or fail to pay, no negative payments will appear on your credit report. However, if the IRS tasks a collection agency to collect the taxes from you, a collection account could appear on your credit report, lowering your credit score.

2. Does the IRS report your payments on credit report?

No, the IRS does not report your tax payments on your credit report.

3. Can not paying taxes affect your credit score?

Yes, not paying your taxes can indirectly affect your credit score. For example, if you fail to pay your taxes, the IRS could contact a collection agency to have them collect your outstanding taxes. The collection agency can cause damage to your credit by placing a collection account on your credit report.

4. What happens to my credit if I pay my taxes late?

Paying your taxes late will have no impact on your credit as tax payments are not reported to the credit reporting bureaus.


Does Paying Utilities Build Credit?

If you're like most Americans, you probably pay utility bills, such as water bills, gas bills, electricity bills, trash bills, and many other utility bills. So, you might be wondering, does paying such utilities build your credit? This post provides you with everything you need to know about how paying utility bills affects your credit score.

Does Paying Utilities Build Credit?

Paying utilities does not build credit because your utility payments are not reported to the credit reporting bureaus. As such, they do not appear on your credit report and do not affect your credit score. So, if you were hoping to build your credit by paying utilities, now you know that utility bill payments do not build credit. Also, missed or late utility bill payments do not appear on your credit report.

That said, even though your utility payments are not reported to the credit reporting bureaus, failing to pay your utility payments can result in a collection account being added to your credit report. A collection account can cause significant damage to your credit.

For example, if you fail to pay your electricity bill, even though the late payment will not appear on your credit report, if your electricity provider sells the unpaid debt to a collection agency, the collection agency can cause damage to your credit by adding a collection account to your credit report in the process of attempting to collect the unpaid amount from you.

A single collection account can cause your credit score to drop by 100 or more points, and it remains on your credit report for 7 years from the date you missed your bill payment. After the 7 year period, the collection account will be automatically removed from your credit report.

Paying a collection account once it's on your credit report will not remove it from your credit report. In fact, a paid and unpaid collection account affect your credit score the same. So, to avoid having a collection account added to your credit report, it's good to make your utility payments on time.

So, if you were wondering whether you can improve your credit score by making utility bill payments, now you know that paying utilities does not build credit.

Does Using a Credit Card to Pay Utility Bills Build Credit?

Using a credit card to pay your utility payments on its own does not build credit. However, when you make payments on the credit card that you're using to pay utilities, making payments can help you build excellent credit.

This is so because your payment history is the biggest factor impacting your credit score. In fact, it makes up 35% of your credit score. So, if you're using your credit card to pay your utility bills, make sure to make your payments on time to improve your credit score because credit card payments are reported to the credit bureaus and are used to calculate your credit score.

However, missing even a single payment on your credit card can cause significant damage to your credit. So, make sure to make your credit card payments on time. A single late credit card payment can cause your credit score to drop by 100 or more points. The higher your credit score, the bigger the point drop will be. So, make your credit card payments on time regardless of whether you're using them to pay your utilities.

Do Utility Payments Appear On Your Credit Report?

No, utility payments do not appear on your credit report because utility providers do not typically report your payments to the credit reporting bureaus. Utility providers do not report payments or lack of payment to the credit bureaus because it costs a lot of money to do so, and there are many legal hurdles that they must comply with if they do report to the credit bureaus. So, most do not report your account status to the credit reporting bureaus.

How To Build or Improve Your Credit?

Now that you know that utility bill payments do not build credit, here are some ways that you can build credit from scratch or improve your bad credit:

1. Make Your Credit Card and Loan Payments on Time

This may come as a surprise to you, but your payment history makes up 35% of your credit score. So, making your credit card, loan payments, car finance payment, and mortgage payments can help you build excellent credit within a short period of time. That said, missing even a single payment can cause significant damage to your credit.

2. Reduce the Balances on Your Credit Cards and Loans

The second biggest factor affecting your credit score is your credit utilization rate. It accounts for 30% of your credit score and looks at how much of your available credit you're using. The more credit you utilize, the lower your credit score will be. So, reducing the balances on your credit cards can significantly improve your credit score. Likewise, using too much of your available credit can significantly lower your credit score. As a rule of thumb, you should use 10% or less of your available credit and never exceed 30% utilization. If you use more than 30% of your available credit, you will notice a significant drop in your credit score.

3. Average Account Age

The third most important factor affecting your credit score is the average age of your accounts. This factor takes into account your oldest account age, your average account age, and the age of your newest account. The older the age of your accounts, the better this factor affects your credit score. Your account age makes up 15% of your credit score. So, if you have an old credit card that's in good standing you should keep it open for the best impact on your credit score.

4. Improve Your Credit Mix

Your credit mix affects your credit score. This refers to the diversity of the accounts currently open on your credit report. The more diverse your accounts, the better this factor affects your credit score. For example, diversity can be achieved by having different account types, such as credit cards, car loans, student loans, home mortgages, etc. The more diverse your accounts, the better your credit score will be because it shows lenders how you've handled different types of debts.

5. Refrain From Applying For Too Many Accounts

The final factor, which is the new accounts factor makes up 10% of your credit score. Typically, this factor affects your credit score positively the older your accounts are and the fewer hard inquiries you have on your credit report. So, to improve your credit, you should refrain from submitting too many credit card and loan applications within a short period of time. This is so because every time you submit a credit application, a hard inquiry is added to your credit report, slightly lowering your credit score.

The Bottom Line

At this point, it should be clear that although paying utilities and utility bills do not build credit because payments are not reported to the credit bureaus, nonpayment can indirectly hurt your credit. Nonpayment can indirectly hurt your credit because your unpaid bills could be sent to a collection and the collection agency could and likely will add a collection account to your credit report, significantly lowering your credit score. So, to avoid this situation, you should make your utility payments on time. If you're having difficulty paying your bills, you should contact the utility provider and ask them for assistance. If you have any general questions or comments, please feel free to leave them in the comments section below.

Frequently Asked Questions (FAQs)

1. What bills improve your credit score?

Bills, such as credit card bills, car loan bills, personal loan bills, mortgage bills, and student loan bills do affect your credit. If you pay these bills on time, your payments do build credit. If you fail to make your payments, late payments will be reported on your credit report, significantly lowering your credit score. Other bills, such as those for water, sewage, electricity, gas, internet, and phone do not affect your credit because payments are not reported to the credit reporting bureaus.

2. Do utility bills affect your credit score?

No, utility bills do not affect your credit score because your payments or lack of payments is not reported to the credit reporting bureaus. However, if your account is sent to collections and a collection account is added to your credit report, this could cause significant damage to your credit.

3. Can making my electricity bill late hurt my credit?

No, making your electricity bill late will not hurt your credit because electricity payments are not reported to the credit reporting bureaus. However, if your account gets sent to collections, a collection account could appear on your credit report and hurt your credit score.

4. How can I add my utility bills to my credit report?

Experian offers a service known as Experian Boost, which allows you to add certain utility bills to your credit report to improve your credit score.

5. Do utility bills show up on credit report?

No, your utility bills will not show up on your credit report because your account status (payments/nonpayment) is typically not reported to the credit reporting bureaus. So, making your utility payments does raise/improve your credit score.


Does Paying Gas Bill Build Credit?

If you live in the United States, chances are you pay for gas. So, you might be wondering, does paying your gas bill build credit? We will provide you with everything you need to know about how paying your gas bill affects your credit.

Does Paying Gas Bill Build Credit?

No, paying your gas bill does not build credit because your gas bill payments are not reported to the credit reporting bureaus. Therefore, they do not appear on your credit report and are not factored into your credit score. So, making all of your gas payments on time will not help you build credit.

Since your gas utility bills are not reported to the credit reporting bureaus, making your payments or failing to make them will have no impact on your credit score. So, if you make all of your payments on time, your payments will not help you build credit. Likewise, missing your payments will not directly hurt your credit since late payments are not added to your credit report.

That said, simply because your payments are not reported to the credit bureaus, this does not mean that missing payments cannot hurt your credit.

If you miss enough payments your gas provider may send your account to a collection agency, and the collection agency can cause significant damage to your credit by adding a collection account to your credit report.

A single collection account can cause your credit score to drop by 100 or more points. The higher your starting credit score, the bigger the drop will be. So, make sure to pay your gas bills on time to avoid having your account being sent to collections.

If you fail to pay multiple gas bills and your account is sent to collection, you should keep in mind that if a collection account is added to your credit report, it will remain on there for 7 years from the date you missed your first payment.

After the 7 year period, the collection account will automatically be removed from your credit report. Please keep in mind that paying a collection account will not remove it from your credit report. There is no difference between having a paid and unpaid collection account on your credit report as they will have the same impact on your credit score.

Why Doesn't Paying Your Gas Bill Build Credit?

Paying your gas bill does not build credit because your gas bill payments are not reported to the credit reporting bureaus, therefore, they do not appear on your credit report nor do they affect your credit score. It costs gas providers a lot of money and requires a lot of legal steps to report accounts to the credit bureaus, so most gas providers simply opt not to report your account status to the credit reporting bureaus.

Does Making Your Gas Bill Late Affect Your Credit Score?

No, making your gas bill late does not affect your credit score because your late or missed payments are not reported to the credit reporting bureaus. That said, although late payments do not appear on your credit report, if you're very delinquent in making your payments, your gas provider may send the outstanding amount that's due for a collection agency to collect it from you. In the process of collecting the debt from you, the collection agency is likely to add a collection account to your credit report, causing significant damage to your credit. So, the best thing you can do to ensure that nothing negative affects your credit score is to make your gas bill payment on time every month.

What Are Some Ways to Build Credit?

1. Making Your Credit Card & Loan Payments On Time

Making your payments on time is the best way to boost your credit score. This is so because your payment history makes up 35% of your credit score, so a quick way to improve your credit score is to make payments on your credit cards, personal loans, students loans, car loans, and all other types of credit. That said, missing even a single payment can cause significant damage to your credit, so make sure to make all of your payments on time.

2. Reducing Your Credit Utilization

The second best thing you can do to increase your credit score is to pay down your account balances. Paying down account balances including credit card debt can help you improve your credit score because your credit utilization accounts for 30% of your credit score. So, if you have credit cards with high balances, reducing them can do wonders for your credit score. As a rule of thumb, you should keep your credit utilization (how much of your available credit you're using) below 10% and never exceed 30%. For example, if you have a total credit limit of $10,000, you should keep your credit usage below $1,000 or 10%. If you use $3,000 (30%) of your available credit, you will exceed the recommended credit usage, lowering your credit score.

3. Keep Old Accounts Open For Longer

The third factor impacting your credit score is the average age of all of your accounts. Typically, the older your accounts, the better your credit score will be. This factor makes up 15% of your credit score. So, to improve your credit score and to build good credit, you should keep old accounts open for longer.

4. Improve Your Credit Mix

Improving your credit mix can positively impact your credit score. To improve your credit mix, you should have different types of accounts on credit reports, such as credit cards, personal loans, student loans, car loans, or mortgages. The more diverse your accounts, the better your credit score will be. This is so because when you handle different types of debt, you're showing lenders that you have experience managing different types of debt, making you more creditworthy.

5. Refrain From Applying For Too Many Accounts

The final factor impacting your credit score is whether you have new accounts and hard inquiries on your credit report. Whenever you submit credit applications for credit cards or loans, a hard inquiry is added to your credit report. Although a single hard inquiry will only knock down your credit score by a few points, submitting too many credit applications within a short period of time will cause several hard inquiries to appear on your credit report, significantly lowering your credit score. As a rule of thumb, you do not want to have more than 2 to 3 hard inquiries on your credit report at a time. The fewer hard inquiries you have on your credit report, the better this factor will impact your credit score.

What Bills Help Build Credit?

Typically, bills that involve paying debt can be used to build credit. For example, credit card bills, personal loan payments, auto loan bills, home loan payments, and a variety of other loan bills build credit. However, bills such as your water, gas, electricity, sewage, internet, and other utility bills do not build credit. So, even if you were to make all of your bills on time, you would not be building any credit.

The Bottom Line

At this point, you should know that paying your gas bill, water bill, or electricity bill does not build credit because gas, electric, and water providers do not report your payments to the credit reporting bureaus. Therefore, whether you make your payments or fail to make them, they will not appear on your credit report nor will they affect your credit score. That said, if you leave such bills unpaid for a long period of time, your utility provider may transfer the account over to collection. If this happens, a collection agency will likely place a collection account on your credit report, significantly lowering your credit score. So, you should always make utility payments to avoid finding yourself in this situation.