Getting an iPhone with Bad Credit

Posted September 23rd, 2009 by Carrie Davis

The good news: The 3G iPhone now costs only $99.
The bad news: If you have poor credit, it may end up costing you $899.

To the frustration of many, AT&T is still the sole wireless provider for the iPhone. That means that all iPhone users must sign a two-year contract with the company and abide by its rates and terms. Whatever AT&T says goes, and that includes charging up to $800 as a security deposit to those who have bad credit.

The AT&T credit check for iPhone users

AT&T requires a credit check of all potential iPhone buyers. This is the first step to buying an iPhone, whether in stores, online, or over the phone. This credit check is the reason you have to supply your Social Security number; your SSN is needed to pull your credit file. But don’t worry: this credit check is "soft" so it won’t ding your credit score.

How AT&T determines the security deposit amount

Depending on how bad your credit is, the AT&T security deposit can range from $100 to $800. Here’s the weird thing though: AT&T never actually sees your credit score. Instead, each of the bureaus—TransUnion, Equifax, and Experian—recommend to AT&T how much of a deposit to charge you. (I can only assume this number is based on a formula that AT&T has prescribed and dictated to the credit bureaus. Otherwise, it means that the credit bureaus, who have no business doing so, are the ones dictating how much extra money we have to cough up to get our iPhones activated.) Once it receives these three deposit amount recommendations, AT&T supposedly takes the lowest one. That is the amount they quote to you, the potential iPhone customer.

There is no way around this deposit. No pre-paid plans are offered for the iPhone. So if you absolutely have to have an iPhone and you have bad credit, you’ll have to pay up. The upside is that you’ll get your deposit back in 12 months (halfway through your contract period).

Your timely AT&T payment history goes unreported and unappreciated

You may be wondering if AT&T reports your payment history to the credit bureaus, since it so heavily relies on their input to grant you service in the first place. But no, AT&T doesn’t report your timely payments to the credit bureaus. So owning an iPhone will not help you to build good credit.

AT&T doesn’t even report your delinquent payments. Instead, it will just shut off your phone service, keep your deposit (if you had to pay one), and turn over the remaining amount you owe to a collection agency. This is where your credit will take a nosedive: the collection agency will report the collections account to the bureaus, and that account will remain on your credit report for seven years. If you have more questions, you can all AT&T toll-free at 1-800-331-0500.

My advice if you really want an iPhone? Bite the bullet and pay the deposit, then make timely payments to AT&T every month. In 12 months when you get your deposit back, do something good with the money, like start an emergency fund, pay down credit card debt, or open a CD.

Did you have to pay a security deposit when you got your iPhone? How much was it, and how bad was your credit?

Photo courtesy of http://www.flickr.com/photos/re-ality/ / CC BY 2.0

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Comments

I don't believe Sprint or

Submitted on September 23rd, 2009 by Ryan Smith (not verified)

I don't believe Sprint or TMobile do prepaid either. So it sounds like you have to have good credit or pay a deposit if you want a touchscreen 3G phone.

This is exactly why Im not an

Submitted on September 23rd, 2009 by Sara (not verified)

This is exactly why Im not an early adopter. People that waited until the iPhone became more main stream got a much better phone at $99 than the original buyers got for $600.

I don't like the idea of the credit bureaus having the power to tell a company how much I should pay as a down payment. That's way too "big brother's always watching for me". The company has a right to know what kind of risk they are getting into, but as a consumer I should also have a right to privacy.

@Ryan - You can get a touchscreen phone with boost mobile without a contract. Not sure about the deposit, but I am thinking you don't have to pay one. It's an unlimited plan (data and talk time) for only $50 bucks a month. Not to shabby, but haven't tried it myself yet. Probably will when my Sprint contract goes out.

It is just ridiculous that a

Submitted on October 27th, 2009 by Nana Visitor (not verified)

It is just ridiculous that a deposit can run as much as $800!

There's no excuse for that --- especially when they can easily set an account limit and simply cut off the phone if you pass that limit or don't pay the bill.

That's what Sprint does.

my credit is basically shot

Submitted on December 14th, 2009 by Visitor (not verified)

my credit is basically shot to hell, my score is about 520, i applied for AT&T about 6 months ago and the deposit was $750. I applied last week and now the deposit is $500, that quote is good for 60 days, so I'll be getting my iPhone in February when tax returns come in.

I have terrible credit (due

Submitted on January 22nd, 2010 by PCTech714 (not verified)

I have terrible credit (due to being out of work for almost two years) and I was notified I had to put down a $750 deposit.

Are you guys smoking crack?

Submitted on February 19th, 2010 by Ed (not verified)

Are you guys smoking crack? Im talking about the ones who are SERIOUSLY entertaining the thought of actually giving AT&T 700 and 800 dollar deposits when you can go on Ebay and BUY your own unlocked iphone outright for those prices?! Not to mention if you do that you can tell AT&T to SUCK IT when they mention any kind of a contract. You can just do month to month then. What are you people THINKING? Dont give into AT&t's bullsh*t. There's always a work around. Yeah, you may still be laying down 7 or 8 hundred dollars but at LEAST you'll own the phone already and not have a 2 year contract. THINK people.