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"Please believe me—I really am financially responsible!" If your credit report is blank, that's what you may want to say to lenders and other businesses. Yet without enough proof that you're capable and trustworthy, their response may be, "Thanks, but we'll pass." Or you'll be accepted, but with cost-prohibitive terms.
So how can you jump-start the process of building credit if you don't have a lot of experience borrowing and repaying the money? Good news: If you're among the 95 percent of people in the U.S. who has a cell phone, simply paying that bill may now help you add to your credit history. Cell phone bills can help build credit because you can now include them on your credit report. Read on to find out more.
How to Improve Your Credit Score With Your Cell Phone Bill
Credit scores, such as the FICO® Score*, take all the financial information listed on your credit reports and plug it into mathematical models designed to predict credit risk. The FICO® Score ranges from 300 to 850, and a score of 700 or above is considered good to excellent. On paper, reaching a high score shouldn't be complicated. Just pay all your credit accounts on time, maintain a low debt load (especially in relation to credit lines), and keep credit applications to a minimum.
The problem for some is getting all that data on there in the first place. You need creditors such as banks, mortgage companies, credit unions, and credit card issuers to send the credit reporting agencies information about your activity. But if you don't have many of those accounts on your reports, you may face the Catch-22 of not qualifying for credit because you don't have much credit. Now you can add in a type of account that previously had not been part of the equation: your cell phone.
By registering with Experian Boost™†, you can build your credit history by having your cell phone account listed on your credit report. Once you add the account, your on-time payments will be factored into your FICO® score. Late payments, which can drop a credit score fast, won't be included as long as the account doesn't go so delinquent that you default and the debt is sent to a collection agency. (You can request that an account be removed from your Boost file at any time.) And that's not all. You can even add utility accounts, such as your gas and electric bills, as well as other telecom bills, such as cable or satellite, to Experian Boost. Those payments will then also be factored into your credit score.
Why It's Important to Build Credit
Adding a cell phone and other non-traditional accounts to your credit reports can make sense if you don't have much on your reports. This is known as having a thin credit file, which typically consists of four or fewer accounts. It's hardly a unique situation. About 26 million Americans have no data on their credit reports, while 62 million Americans have too little. Without information on your reports, you're a mystery to lenders and other businesses. Because the past may be a predictor of the future, a thin credit file makes you an automatic credit risk to lenders.
On the other hand, a thick credit history and a high credit score will help you in a variety of ways. For example, you can more easily:
- Purchase a home. Your credit scores are the most important factor to a mortgage lender, so if yours are too low, you will likely have a hard time getting a home loan or face prohibitive interest rates.
- Buy a car. Those ultra-low-interest financing deals—including 0% APR offers—are usually only available to people with excellent credit scores.
- Obtain personal and business loans. If you want to borrow money to pay for personal expenses or to launch your dream business, your credit scores need to be in good shape.
- Qualify for premium credit cards. Many credit cards offer valuable rewards programs, but they typically require good to excellent credit scores.
- Rent an apartment. Landlords often depend on credit reports and scores to determine how financially responsible a tenant you might be. If yours are unimpressive, your application may be rejected.
- Save on car insurance. No one wants to pay more for car insurance than necessary. If you have good scores, you may be eligible for discounted premiums.
- Keep the initial outlay on utility costs low. With a decent credit score you won't have to submit a security deposit to start a utility account; but if yours are poor or nonexistent, it may be required.
In short, a high credit score helps you keep costs down and opportunities open. So if you weren't inspired to join the 700+ club before, you should be now.
Building Credit Beyond Cell Phone Bills
As your cell phone payments work to your credit scoring advantage with Experian Boost, consider additional methods to hike up those numbers. Some effective start-up ways to build your credit are:
Open a secured credit card. These cards work the same as unsecured credit cards, but to open a secured credit card, you offer a cash deposit which typically equals the credit line. Pay the bill on time and in full and the issuer will send all that fabulous activity to your credit reports.
Try a retail credit card. Some department and big box scores have less restrictive credit requirements than major credit card companies, so getting an unsecured retail credit card and using it responsibly will push your scores upwards. Be sure to pay off your balances every month, as retail cards often carry high interest rates.
Have a creditworthy friend to cosign. If you can find a trustworthy—and trusting—person who has a good credit rating to cosign on a loan with you if you need cash. Once you have the loan, make all payments on time every month. Take this responsibility seriously, since the co-signer will be on the hook for any payments you miss.
Ask to be an authorized user. Almost all credit card issuers allow account owners to assign authorized users. If a friend or relative makes you one, you may charge with a card imprinted with your name, and the account should be listed on your credit reports. (Make sure this is the case, as card issuers don't always automatically add authorized users.) The owner makes the payments, not you, so if that person sends them on time (and doesn't get into deep debt), your scores will benefit.
Obtain a collateralized loan. If you have a thin credit file but want to borrow money, look into secured loans. Because you pledge an asset that the lender can claim if you default, the lender takes less risk, making some of these loans easier to qualify for than their unsecured cousins.
Keep Adding Positive Credit Report Information
The only way to build a credit history and improve credit scores is by ensuring that there is a constant flow of positive and current activity on your credit report. Therefore, if you haven't developed a credit score yet or the numbers are languishing at the bottom of the scale, add your cell phone bill to your report with Experian Boost. The more payments you make by the due date, the richer the data that will be used in a credit score will become.
While you continue to build your credit history, be sure to get a copy of your free credit report. Ensuring all the information contained here is accurate is key to avoiding problems down the road and helping improve your credit.
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 score.
This service is completely free and can boost your credit score 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.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.