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2 Ways Cell Phones Can Lower Your Credit Score

Posted May 27th, 2009 by Carrie Davis

I’ve gotten a couple of questions from readers asking whether or not a cell phone can hurt your credit. The short answer is yes, it can. Here’s how.

Applying for Cell Phone Service

First of all, let’s talk about getting a cell phone. You’re going to need good credit to get service. Almost all wireless providers check your credit before setting you up with an account. They want to make sure you’re “creditworthy” before “lending” you minutes of airtime. So it’s a good idea to check your own credit history before going to get a cell phone (especially considering that you may be asked for a large down payment or pay more for monthly service if your credit isn’t up to snuff).

This credit check by the wireless provider is the first way getting a cell phone can ding you. Anytime a company makes an inquiry into your credit report, your score suffers slightly. It’s really not a big deal as long as you don’t apply for wireless service from several different providers all at once. That could notably lower your score.

Reporting Your Payment History to the Bureaus

Once you have a cell phone, some service providers do report your monthly payments to the credit reporting agencies. Some, like AT&T, report both your on-time and delinquent payments; Others report only your delinquencies. Before signing up for wireless service, ask the provider its policy on reporting your payments to the credit bureaus. Since payment history accounts for 35% of your credit score, not paying your cell phone bill to the companies that report could significantly damage your score.

Other wireless providers like Verizon and Sprint don’t report any monthly payment history to the bureaus. But that doesn’t mean you’re off the hook. Almost all wireless providers will turn you over to a collections agency if you default on your account entirely. And this collections account will most likely show up on your credit report, dragging down your credit score. AT&T sends you three warning letters before turning your account over to collections; Verizon waits 120 days from the first missed payment. 

The Catch-22

It’s important to have good credit to get wireless service, and it’s important to pay your monthly cell phone bill to maintain good credit. So where does that leave people with bad credit? Consider a prepaid cell phone if you don’t qualify for a traditional plan, or a provider is asking you to pay more for a traditional plan because of bad credit.

The downsides with going prepaid (besides having to pay upfront for your cell phone usage), is that the minutes are sometimes more expensive than traditional plans. Unfortunately, this is just one more example of a catch-22 in which a credit-challenged person is required to pay more for goods and services, making it even harder improve their credit situation. (For more examples of how the poor get poorer, check out this recent Washington Post article on the topic). 

But prepaid cell phones aren’t all bad. In fact, many people out there actually prefer them. They come with no commitment, so if you have a problem with the service or cost, you can simply switch providers. And sometimes prepaid plans can save you money, especially if you only use the phone for emergencies, rather than long chats.

Check out 10 other useful secrets the cell phone carriers don’t want you to know. And remember that your cell phone can affect your credit, so it’s important to pay your bill each month.

 

Photo by KB35


 

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Thank you so much for posting

Submitted on May 28th, 2009 by Visitor (not verified)

Thank you so much for posting this. I have a really hard time with choosing the right mobile phone for myself. This helped a bit.

You're welcome. If you're

Submitted on May 28th, 2009 by Carrie Davis

You're welcome. If you're worried about your cell phone monthly payments affecting your credit, make sure to ask the provider upfront if they report to the bureaus, and if they report both timely and delinquent payments, or just delinquent. Some people are looking for a company that reports all payment history, which would build their credit rating. Just remember though, that with enough delinquent payments, every provider will turn your account over to a collections agency -- and that will lower your credit score. Good luck!

Carrie, nice article. The

Submitted on May 29th, 2009 by Dylan (not verified)

Carrie, nice article. The main thing I would mention to anyone considering switching to pre-paid cell phones, however, is that you should figure out first whether you can reduce your current cell bills down to acceptable levels--thereby saving often significant plan cancellation fees (AKA "early termination fees"), not to mention the convenience of keeping your present cell phone number. Importantly, there are still ways to effectively reduce your cell bill. Not to blatantly plug, but I work for the consumer advocacy website http://www.fixmycellbill.com, powered by a company called Validas, where we slash the average cell bill by 28 percent. It costs five bucks to implement our suggested changes to your plan (the average consumer currently saves around $450 annually through us) but we will analyze your bill for free without any commitment of purchase, just to let you know exactly how many dollars your carrier is ripping you off by. I could go on and on about how shifty these cell companies can be in their attempts to make you overpay. We stop them, and have currently saved consumers over $5,000,000 by auditing over 26,000 cell lines. You can check out Validas’s fixmycellbill.com in the national news media, most recently on Good Morning America at http://www.abcnews.go.com/GMA/MakeMoney/story?id=7640149&page=1.

Good luck to everyone reading on making an informed wireless choice.

Dylan

I dumped my land line and got

Submitted on May 30th, 2009 by Cheap Chick (not verified)

I dumped my land line and got out of my cellphone contract when the company changed its terms. (Did you know that if they do that, it voids the contract?

They don't tell you that, but I saw it on the Consumerist site and it worked! No termination fee too. Haha.)

Anyway, I got a prepaid Net10 phone and everything is 10 cents a minute... even International calls which is great since my son is traveling right now.

But the best thing about this is that there aren't any bills and I know what my costs are because I pay upfront for my calls. It's great!

Thanks Dylan, I didn't know

Submitted on June 1st, 2009 by Carrie Davis

Thanks Dylan, I didn't know there were groups out there that offer cell phone savings. Do you actually contact the cell phone company on behalf of the consumer, or does the consumer pay $5 to see your suggestions and then contact the cell phone company herself?

Thanks Cheap Chick. Pre-paid

Submitted on June 1st, 2009 by Carrie Davis

Thanks Cheap Chick. Pre-paid plans can definitely be the way to go when you only want to pay for how much you talk, and don't want hidden fees or complicated contracts. I personally pay $35/month for my Verizon plan that gives me 450 anytime minutes. But I usually only use about 100 minutes each month. So in my case, I could actually save $25 month or so by switching to a prepaid plan. Of course, I'll have to wait until my contract runs out to switch...

Carrie, the consumer can opt

Submitted on June 1st, 2009 by Dylan (not verified)

Carrie, the consumer can opt for us to take care of adjusting the plan with the carrier directly. You just sit back and save!

Dylan

Interesting post. I have

Submitted on June 8th, 2009 by MyCreditGroup (not verified)

Interesting post. I have verizon and have never used AT&T, but had no idea they reported monthly payments.

I guess the upside to that is its a way to establish a payment history. Cell phone companies typically are easier to get than a normal credit card, so if you manage to get an account with them, it will help your credit after a few months of on-time payments.

Yes, getting a cell phone

Submitted on June 9th, 2009 by Carrie Davis

Yes, getting a cell phone plan with certain companies will help you build your credit if you pay your bills on time. If you're applying for a cell phone and have weak credit, though, there's a chance the provider will charge you more for service, either in the form of an upfront deposit or simply higher monthly charges. It's a good idea to check your credit before you apply for a cell phone to see where you stand.

Speaking of cellphones, I

Submitted on July 25th, 2009 by Chris Chan (not verified)

Speaking of cellphones, I came across this Net10 video mashup here: http://no-evil.net. Funny stuff!!

AT&T does NOT report your

Submitted on August 25th, 2009 by Visitor (not verified)

AT&T does NOT report your payments anymore. I called them today to check this, since my credit report had no name of AT&T anywhere on it. And they told that they report only if you default. So using AT&T doesn't help me build any credit history.