You pay your bills on time every single month, that should help your credit right? Not necessarily.
Only bills that appear on your credit report can help you build good credit. This usually includes payments for loans and credit cards, while other types of bills, like rent payments, aren’t normally a part of your credit history.
For bills that aren’t reported, you can subscribe to services that will report them to the credit bureaus for you, which can boost your credit score.
There are also other steps you can take towards achieving a good credit score.
What Bills Help Build Credit?
Almost any bill that is paid on time can help you build credit. In particular, bills issued by a lender will have the biggest impact on your credit (student loans, auto loans, etc.).
This type of bill will have an impact on several aspects of your credit, which include payment history, amounts owed, length of credit history, and more.
Other types of bills, like utility bills, phone bills, etc. do not often have an impact on your credit. This is because many of these bills are only reported to the credit bureaus on a voluntary basis.
This means that in order to have an impact on your credit, either the provider or creditor has to send your payment information to the credit bureaus, or you have to pay a 3rd party service to send the information to the credit bureaus.
Bills That Are Usually Reported
The bills that are most often reported to the credit bureaus are those issued by a bank or other type of lender. This can include:
- Auto loans
- Student loans
- Credit card payments
- Personal loans (i.e. debt consolidation, installment loans for large purchases, etc.)
Banks and other large companies need to use credit reports to determine if an individual is creditworthy or not. Because they are so dependent on credit reports, they already have an incentive to report your payment activity to the credit bureaus.
Banks and other large companies also have an easier time meeting the stringent reporting standards that the credit bureaus enforce.
Along with your payment information, the lender will report other account details. Which include when you opened the account, when you closed the account, what the current balance is, and what your credit limit is or what the original loan value was.
All of these reported details will have an impact on your credit score.
Bills That Are Usually Not Reported
The majority of the bills you pay each month are unfortunately not reported to the credit bureaus. The most common types of bill payments that are not reported, include:
- Utility (electric, gas, etc.)
- Insurance premiums
These bills or charges are often issued by companies that are too small or otherwise can’t meet the credit bureaus’ stringent reporting requirements, or they simply can’t afford the cost of reporting.
With all of these types of bills, the provider may pull your credit report when you are setting up your account, which means you could see a hard or soft inquiry on your credit, but that will likely be the last time they appear on your credit report.
The exception is if you are 30+ days late on a payment for one of these types of bills. In this situation, they may end up reporting the late payment to the credit reporting agency or they could send you to collections, which will definitely appear on your credit report.
Services to Report Your Bills to the Credit Bureaus
You can build credit through non-loan-type bill payments if you (or your provider) use a 3rd party reporting service.
These services often work with you as well as your provider or landlord to get your positive payment history reported.
One of the most common types of services is rent reporting services. These companies work with renters, and often, the landlord as well, to get your payment history and ongoing payments reported. BoomPay is a good option, so is Credit Rent Boost.
There are services that can help you with reporting other types of bills as well. Experian Boost, for example, links directly to your bank account to find recurring payments for utility bills, phone bills, and even streaming services. They then add this information to your Experian credit report.
Can Late Bill Payments Affect My Credit Score?
A late payment can negatively damage your score. But this only applies to bills that get reported to the credit bureaus.
For credit purposes, a payment is considered late once it is 30 days overdue. A bill that is only a few days overdue, if paid promptly, will not be reported to the credit bureaus as a late payment and therefore will not negatively impact your credit score.
A bill that is reported 30+ days late will impact the payment history portion of your credit score, which at 35%, is the most important aspect of your credit.
Loan-type bills and credit card bills will immediately report a 30+ late payment.
Other bills types, ones that don’t normally report to the credit bureaus, could also end up on your credit if they get sent to collections or if you are using a reporting service.
It is important to always pay your bills on time as even one 30-day late payment can negatively impact your score for years.
Other Ways to Build Credit
Having your bill payments reported to the credit bureaus isn’t the only way to build credit. There are many alternative options for building credit. You can even use many of these along with bill payment reporting to give your credit score a bigger boost.
Use Credit Strong
One easy, secure way to build your credit is to use a credit builder loan.
This type of installment loan lets you make monthly payments to build your credit and gives you a way of building your savings at the same time.
One such company that offers this type of secured loan is Credit Strong. You can take out a loan ranging in value from $1000 to $10,000 with repayment terms ranging from 12 months to 10 years. And, there is no credit check.
The loan funds are locked away in a savings account. And as you make payments on the account, Credit Strong reports those payments to all three of the credit bureaus. At the end of the loan term, you get all of the loan money in that savings account returned to you.
To learn more about Credit Strong and the credit builder loan, check out their website.
Apply for a Secured Credit Card
Another great way to build credit is by opening a secured credit card account.
Secured credit cards have less stringent requirements when compared to unsecured credit cards. This is because the credit limit on a secured card is backed by the security deposit you are required to put down.
Even those with bad credit can usually qualify for a secured card, and the low limits offered by many of these cards can be a great way to protect you from going into too much debt.
When it comes to reporting to the credit bureaus, secured cards are reported just like regular credit cards.
And, once you’ve held the credit card long enough, the credit card company or card issuer could offer you a credit limit increase or transition you to an unsecured card.
Follow this link to find our top picks for the best secured credit cards to build credit.
Pay Off Any Existing Debt
If you have poor credit due to an overwhelming amount of debt, the best way to improve your credit score is to start paying down that debt.
Having too much debt decreases your credit score because it raises your credit utilization ratio. As you pay off your debt, your credit utilization ratio decreases and this decrease can raise your overall credit score.
For example, let’s say you have $8000 worth of debt on your revolving credit accounts and $10,000 worth of credit limits. This gives you a utilization ratio of 0.8, meaning that you are currently using 80% of your available credit.
If you pay down $2000 worth of credit card debt, this drops your ratio to 0.6. This should raise your credit score by a few points.
The ideal credit utilization rate to aim for is 10% or less of your available credit (ratio of 0.1).
Make On-Time Payments Each Month
The most important part of your credit score is your payment history. You want to make sure that you are always paying your statements on time every month.
Being one or two days late won’t impact your credit, but it may result in late fees charged or a penalty interest rate.
A payment that is more than 30 days late is officially reported to the credit bureaus and will severely damage your credit.
If you already have late payments appearing on your credit reports, once you’ve paid the late payment, the only way to improve this portion of your FICO score is to make sure you pay all of your bills on time in the future.
One late payment is bad enough, but if you begin acquiring several, your credit score will tank, and it will likely take you years to repair it.
When you have bad credit or a thin credit profile, having your monthly bills added to your credit history can really help improve your score.
You are already paying these bills, so why not let your credit benefit from them? The downside is that you usually have to pay a fee for the reporting.
If you are unwilling or unable to use a rent reporting or bill reporting service, there are still other ways to improve your credit. The most important thing is just to be actively working towards building good credit.
Amanda Garland is a personal finance blogger living in Dallas, TX. 10 years ago she was living paycheck to paycheck and knew nothing about how credit works. She learned some hard lessons in her fight for financial stability. Now she has a friendly competition going with her husband to see who can reach a credit score of 850 first. She is also a poet, having obtained a Bachelor of Fine Arts degree in Creative Writing.