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When you submit an application to open a new utility account, the company may run a credit inquiry to determine the likelihood that you'll pay your monthly bill on time. That inquiry is called a "soft inquiry" and will not have an impact on your credit report and score.
Today, utility accounts can actually be used to positively affect your credit report. Read on to find out how.
The Difference Between Hard Inquiries and Soft Inquiries
There are two types of credit inquiries: hard and soft.
- Hard inquiries typically occur when you initiate a credit transaction, such as applying for a loan or credit card. That said, one additional hard inquiry will typically knock less than five points off a person's FICO® Score☉ . Where it can have a greater impact is if you have too many inquiries in a short period. Why? Because it can be a sign of financial distress.
- Soft inquiries, on the other hand, have no effect on your credit score. These typically occur when a prospective lender sends a preapproval offer, or an existing lender runs a credit inquiry during a routine account review. Similarly, utility companies checking your credit are soft inquiries. Checking your own credit report is also considered a soft inquiry.
What to Do About Inquiries You Don't Recognize
If you don't recognize an inquiry on your credit report, don't panic. Many creditors use abbreviations or a parent company name when reporting credit activity. Do a quick online search to try to match the name to a company you did business with.
Another reason may be that you applied for a type of loan where several lenders were competing for business. This often happens with auto loans and mortgages where the dealership or broker sends your application to multiple lenders to shop around for the best rate.
While "rate shopping" inquiries are consolidated into one for credit scoring purposes, you'll still see each one on your credit report.
If neither of these scenarios is the case, it could be a sign that you're a victim of fraud. If you believe someone has stolen your identity, contact the credit reporting agencies, including Experian, Equifax, and TransUnion, to dispute the information. Also, consider adding a fraud alert or freeze to your credit file.
Can Utility Bills Impact Credit Scores?
Utility bill payments typically don't affect your credit score because most utility companies don't report on-time payments to the credit bureaus. The exception is when you're severely delinquent on your payment, and the utility company sends your bill to collections.
At this point, the collection agency will typically report the past-due debt to the credit reporting agencies, which can significantly damage your credit score. The same can happen if the utility company charges off your account, assuming you're not going to pay.
Now, however, your utility payments can have a positive impact on your credit report. Experian Boost™† is a tool that allows you to include utility and telecom payments in your Experian credit file.
Simply give Experian access to your bank account data, verify monthly utility payments, and confirm that you want them included on your credit report. If the new information can increase your credit score, the boost will happen immediately.
Experian Boost doesn't include late utility payments in its calculations, so you don't have to worry about those having the opposite effect.
Ensure That Utilities Help Your Credit
Utility inquiries are only soft inquiries, so they won't hurt your credit. And if you opt in to Experian Boost, your utilities can even help your credit scores.
If you're late on a utility payment or your account has already been sent to collections, try to get caught up on payments or pay off the collections account as quickly as possible. Then work to maintain a positive payment history going forward.
To get a better understanding of where your credit stands, order a free credit report. While a delinquent account can remain on your credit report for seven years, new positive credit activity can reduce its impact over time.
Want to instantly increase your credit score? Experian Boost™ helps by giving you credit for the utility and mobile phone bills you're already paying. Until now, those payments did not positively impact your scores.
This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.