Q: I’m thinking of buying my first home but I’m concerned that I might not have a good credit score, as I was late on my payments for on a couple of cell phone bills a while back. Could this be a problem?
A: The short answer is, possibly. Cell phone bills can affect your credit report as they are being reported on the credit bureaus: Equifax and TransUnion.
One of the most important factors in determining your credit score is your bill payment history. Thirty-five per cent of your credit score is calculated based on your payment history. Miss a payment and it will show up on your credit report.
When you pay your cell phone bill on or before the due date, the payment is reported on your credit report. If a payment is made after the due date, then the late payment is also reported. Late payments on any account is a negative reflection of your borrowing habits when reviewed by mortgage lenders and creditors who rely on the credit report when deciding to extend you credit or not.
When lenders and creditors are looking at extending you credit, they not only focus on your credit score (also known as your Beacon score) but also on your revolving credit and any other credit accounts you have. This shows if you have any late payments in the past. While your score might move up or down, the activity on each of your accounts remains in your credit report for at least six years. Therefore, it is important to ensure you pay your creditors on time, including your cell phone bill.
Just like any other creditors, cell phone companies report to the credit bureaus your payment history with them. Any negative remarks from cell phone companies such as late or missed payments, account closures by creditors, and account collections may reduce your credit score. If any of your accounts are delinquent and are sent to a collection agency, they are reported on your credit report and your credit score starts going downward.
Revolving credit such as lines of credit and credit cards are considered the main focus on your actual credit score. There are two other types of credit that are reported – they are installment credit such as car loans, personal loans, student loans; and open credit such as cell phone contracts.
If anyone has walked away from a cell phone contract obligation, it is recommended that they investigate themselves as to whether the company has sent their account to a collection agency and a collection is registered on their credit report. Even if it is believed that you had the right to do so. Also, when you switch cell phone providers it would be helpful to have something in writing confirming that you have fulfilled the contract and that your account has been closed.
If you have a history of being behind or constantly late on paying your cell phone bill, be aware that it is important to have the payment up to date. If it’s easier, set up a system for automatic payments from your account and put it into place to help pay your cell phone bill on time every month.
If you have any questions on how your credit report can affect you when you are looking at getting a mortgage, and how to repair your credit score, contact a mortgage expert for some guidance.