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You've probably got credit cards in your wallet, and you may be paying back a student loan or car loan. But there's another kind of credit you may not even realize is credit at all—service credit.
You're using service credit when you have an account with a service provider such as a utility company or cellphone provider. Service credit is a form of credit that allows you to use utilities and other services now and pay later.
Let's take a closer look at how service credit works, how it differs from other types of credit and how it can affect your credit score.
What Is Service Credit Used For?
Consumers use service credit to access various utilities and services, including gas, electricity, water, internet and cellphone service. You use the services now and pay for what you use later. The amount due may vary each month depending on the quantity of services you use, or you may pay a fixed amount every month.
For example, each month you use electricity to heat or cool your home, operate appliances and keep the lights on. At the end of the month, you receive a bill showing the total amount of electricity you used in the past month and its cost. Unlike credit cards, which let you carry a balance from one month to another, service credit bills must be paid in full each month or your service may be canceled.
Credit cards set credit limits on how much you can borrow. But service credit is what's called open credit, meaning there's typically no limit on the amount of services you can use—or the amount of the bill you can run up. Failure to notice a broken sprinkler or leaky pipe in time, for instance, could result in a water bill for hundreds or even thousands of dollars.
Because it's how utility companies typically charge, service credit is sometimes called utility credit.
Service Credit vs. Revolving Credit vs. Installment Credit
Service credit is one of the three major types of credit. The others are revolving credit and installment credit. How are they alike, and how do they differ? Here's a comparison:
| Three Types of Credit Compared | ||
|---|---|---|
| Revolving Credit | Installment Credit | Service Credit |
| Examples: Credit cards and home equity lines of credit | Examples: Mortgages, student loans, auto loans and personal loans | Examples: Contracts with service providers such as utility companies, cable and internet providers, and cellular phone companies |
| You can borrow up to a maximum credit limit | You receive a loan for a specific amount of money | You receive services each month and pay for them after the fact |
| You can choose to carry over a balance from month to month | Loan may charge origination fees or other fees | Charges can be based on usage, such as an electric company charging per kilowatt hour |
| Interest accrues on any balance carried over at a rate set in card agreement | Interest accrues on loan balance at a rate set by loan terms | Late or missed payments may incur fees, but interest generally does not accrue |
| You choose your monthly payment amount (after making a monthly minimum payment) | Loan, interest and fees are repaid over a set time period by making set monthly payments | Payment is due in full each month |
| As you pay down the balance, you can use credit again up to your limit | Once loan is paid off, account is closed and cannot be used again | Your access to services, such as cellphone data, may or may not be capped to a certain amount each billing period |
| Payment history is reported to the three major credit bureaus | Payment history is reported to the three major credit bureaus | Payment history typically not reported to the three major credit bureaus |
How Service Credit Affects Your Credit
Utility companies and other providers of service credit don't automatically report your account to the three major credit bureaus (Experian, TransUnion and Equifax). As a result, your service credit payment history may not affect your credit score.
The exception is if you don't pay your utility bills and your account becomes delinquent. In that case, the service provider might charge off your account, assuming you will never pay. A charge-off closes your account so that you can no longer use the company's services. Charged-off accounts may also be sent to a collection agency. Both charge-offs and accounts in collections are reported to credit bureaus and stay on your credit report for seven years from the original date of delinquency.
On the other hand, if you always pay your service credit bills on time, there's now a way you can use that positive history to help boost your credit score. By signing up for Experian Boost®ø (it's free), you can get credit for your on-time payments for utilities, cellphone and streaming services. Positive payment history will show up on your Experian credit report and can help improve credit scores that are calculated using Experian data.
Get Credit for Service Credit
Leaving utility, internet and cellphone bills unpaid could eventually damage your credit score. In addition, the utility company could cut off your service, leaving you without electricity or running water. They may also impose late fees, fees for disconnecting your service or fees for reconnecting it again.
Because utility companies may check your credit report before opening an account, failing to pay your bills could make it difficult to get service from other providers in the future. Wondering if you have any negative utility information on your credit history? Check your credit report to find out. Then consider signing up for Experian Boost to help boost your credit score by paying your utility bills on time.