True or False: Utility Payments Directly Affect Your Credit Score?
Is the following statement true or false? Utility payments directly affect your credit score.
Some say yes and others say no. Let’s break this myth down once and for all.
Yes, no… maybe so?
Some consumers believe that all of their bills – including electric, gas, and water payments – automatically contribute to their universal credit score. In fact, the split between people who think the answer is yes and people who think the answer is no is about an even 50/50. TransUnion’s survey lays out the divide:
When dealing with a traditional score, utility accounts are not considered credit accounts. Instead, most major credit bureaus only record accounts related to loan payments, like mortgages and auto loans. Meaning, successfully paying your monthly water bill isn’t popping up on Credit Karma as a paid credit account. You essentially get a pat on the back – encouraging you to keep paying up.
However, not paying your electric bill can eventually give you bad credit – putting you (and your credit score) in a hole. Repeated defaults on your utility bills do eventually show up on your credit report. Doesn’t seem fair, does it?
Putting the “myth” to the test
It’s not all cut and dry, though. In some new and emerging models, your on-time utility payments actually can indirectly impact your credit score. These new models are turning the traditional credit score on its head, in an attempt to better meet the needs of today’s consumers.
Let’s take a closer look at Experian, one of the “Big Three” credit reporting agencies. Its new tool, Experian Boost, does make it possible for consumers to turn on-time utility payments into good credit.
Here’s how it works. Consumers start by giving Experian access to their bank statements, allowing the bureau to scan for utility and cell phone payments. Those payments are then tracked and added to the consumers’ credit files.
The majority of people who add utility payment history will see an instant improvement in their credit score.
A notable benefit of Experian Boost is that it only reports positive payment history; missed payments don’t hurt your score. “This record of recurring payments will build out a consumer’s positive payment history and length of credit,” said Jeff Softley, chief marketing officer for Experian Consumer Services. “So the majority of people who use the product will see an instant improvement in their credit score.”
The missing puzzle piece
There’s a small caveat, though: Experian Boost isn’t actually looking at your utility payments in full. It’s looking at estimates of utility payments, from monthly transactions on your bank statement. So while it might see that you made a payment every month, it doesn’t show whether you paid the full amount or whether you paid on time.
Urjanet, on the other hand, offers utility payment data directly from the source: utilities. Through a similar opt-in model, you can give credit bureaus access to your utility account data, and they can use it to add to your credit file. This type of data includes:
- Due date
- Actual payment date
- Amount due
- Actual amount paid
Another reason utility payments from the source might be beneficial is that it allows you to share a less sensitive account with a third party. If you are nervous about sharing your bank account data online, you’re not alone. But hackers have much less incentive to steal your utility account data – that is, unless they’re Good Samaritans trying to pay your bills for you.
The benefits of adding utility payments to your credit score
Experian Boost is just one example of how alternative credit scoring models are starting to expand the opportunities for credit access to the people who need it, and that population isn’t small. The World Bank reported that alternative credit scoring could bring financial services to up to 100 million more adults globally.
Alternative credit scoring could bring financial services to nearly 100 million adults worldwide.
So, to answer the question, utility payments most likely don’t affect your credit score today, but you can change that. If you want to reap the benefits of positive payments – and if you think it’ll boost your score – ask your credit bureaus if they’re using utility payment data from Urjanet today.
You might also like:
- eBook: From Underbanked to Understood
- A Comprehensive Guide to Alternative Data Sources
- Expert Q&A with eCredable: Changing the Credit Scoring Game with Alternative Data
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About Asia Casey
Asia Casey is a Marketing Intern at Urjanet who has a passion for communication and writing. When she's not at Urjanet, she can be found studying public relations at the University of Georgia.