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.