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The biggest single influence on your credit scores is paying bills on time, and historically that's meant credit bills—payments on loans, credit cards and other debts. But now credit scores can benefit from timely utility and service payments as well.
Types of Accounts That Can Impact Credit Scores
Credit scoring software programs, known as scoring models, perform complex statistical analysis on the data in your credit reports—the records showing your history of borrowing money and paying your bills. Scoring models generate a three-digit score, based on your predicted likelihood of paying your bills. Models may use different score ranges, but all typically assign higher scores to individuals seen as likelier to repay their loans and lower scores to those seen as riskier borrowers.
While no two models operate identically, the FICO® Score, used in 90% of all U.S. lending decisions, says payment history—your pattern of paying bills on time—is the single most significant influence on your FICO® Score, responsible for as much as 35% of the score. FICO rival VantageScore® has similarly cited payment history as the most influential factor affecting its scores.
Traditionally, credit reports have recorded payments on two types of debt: installment loans and revolving credit accounts.
- With an installment loan, you borrow a lump sum of money and pay it back in a series of regular payments over a set number of months. Each payment, or installment, is typically the same amount. Student loans, car loans, and mortgages are all examples of installment loans.
- Revolving loans, such as credit card accounts and some kinds of home equity loans, allow you to borrow against a specified borrowing limit and make repayments of varying amounts, as long as you meet a required minimum payment each month.
How Service Accounts Can Now Impact Credit
Designers of credit scoring models have long known that a pattern of timely payments on any bills—not just bills for loans and credit cards—indicate financial discipline and good money management habits. A number of existing scoring models, including FICO Score 8, are designed to take non-debt payments such as those for phones, utilities, and cable service into account if they appear on your credit report.
Historically, that has been a very big "if." Very few individuals have seen credit score benefits from service payment data because very few phone, utility and cable providers share payment information with the national credit bureaus. When they do, they tend to benefit your FICO Score 8 credit score.
A new free program called Experian Boost aims to change that. If you enroll in the Boost program and allow Experian to securely access your online utility and telecom payment history, payments on authorized accounts will begin appearing on your Experian credit report and your FICO Score may get a boost. Enrolling in Boost also gives you access to your Experian credit report and FICO Scores, so you can track your progress.
The exact increase will vary, depending on the nature of your credit history, and some Boost users will see no change in score or even a decrease. Boost only considers on-time payments, so the occasional late payment won't affect your credit score.
Keep in mind, however, that—unrelated to the Boost program—if you fail to pay your bill to the extent that your provider closes your account and pursues back payments through a collections process, that will be noted on your credit file and could severely reduce your credit scores. (If you have concerns about any of your utility or phone bills, you can remove them from Boost at any time.) Also, note that not all lenders use FICO Scores for lending decisions and that Boost will not affect any credit scores based on data from credit bureaus other than Experian.
Other Credit Score Factors
While payment history is the most significant credit scoring factor, several other factors affect your credit scores. Fair, Isaac Corp., the maker of the FICO Score, ranks the following additional factors, in decreasing order of influence on your FICO scores:
- Usage rate on revolving credit is responsible for nearly one-third (30%) of your credit score. Usage rate, or credit utilization ratio, is a technical way of describing how close you are to "maxing out" your credit card accounts. You can calculate your total utilization rate by dividing the sum of all balances by the sum of all spending limits. Most experts agree that utilization rates in excess of 30%, on individual accounts and all accounts in total, tend to drive down credit scores.
- Age of credit accounts is responsible for as much as 15% of your credit score. If you pay your bills on time and keep your usage rates within prudent ranges, then the longer you're a credit user, the higher your credit score is likely to be. There's not much that can be done about that if you're a new borrower, but if you manage your credit carefully, your credit score will tend to increase over time.
- Total debt composition, or credit mix, is responsible for about 10% of your credit score. The FICO credit scoring system tends to favor individuals with multiple loan accounts, consisting of a mix of installment loans and revolving credit.
- Credit applications and new credit accounts typically have short-term negative effects on your credit score. When you apply for new credit or take on additional debt, lenders consider you at greater risk for being able to pay your bills. Scoring systems such as FICO can cause scores to dip a bit when that happens, but your scores will typically rebound within a few months as long as you keep up with all your payments. New credit activity can contribute up to 10% of your overall credit score.
- Negative entries on your credit report, such as bankruptcies, can have severe negative impacts on your credit scores. Because they do not appear in every credit report, these entries cannot be compared to other credit score influences in terms of percentage, but they can outweigh all other factors and severely lower your credit score. A bankruptcy, for instance, can remain on your credit report for up to 10 years, and may effectively prevent you from getting credit for much or all of that time.
If you'd like to see your timely payments of utility and telecom bills reflected in your credit score and would like to gain free access to your Experian credit report and FICO Score 8 credit score in the bargain, consider enrolling in the Experian Boost program. In the meantime, make sure you are practicing responsible credit habits and checking your credit report to ensure you're doing everything you can to continue building your credit history.
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.