Certain payments you make are filed with credit bureaus while other bills aren't. Payments on mortgages, credit cards, and other loans, for instance, are reported monthly, and paying promptly can increase or keep your credit rating. Payments for utility bills, such as ones for cable TV as well as mobile or landline telephone service, are generally not reported until they're in serious delinquency and sent to collections, an action that can cause a significant negative impact on your credit rating.
Exceptions to the Rule
However, there are certain exceptions. FICO, the company behind the most widely-used credit scoring models, provides one score, dubbed FICO XD 2. FICO XD 2 includes certain non-traditional information, like utility bills. The aim is to develop credit scores for those who may not have sufficient information on their credit reports to ensure that lenders can determine their creditworthiness.
Consumers can also decide to get their utility bill payments reported on their credit reports with Experian, among the 3 largest national credit bureaus, by registering into the Experian Boost program and allowing Experian to look up their telecom and utility bills payment histories. It is possible to make this change to show their credit history, for instance, if you don't already have accounts on their credit report and are looking to build an impressive credit score showing that they pay their bill in time.
What's The Value Of A Payment?
Pay history is the one and an only major factor in the credit rating of your score. A simple FICO score, for instance, comprises:
- Payment history (35%)
- Inquiries/new accounts (10%)
- Credit utilization (30%)
- Credit mix (10%)
- Account age (15%)
The VantageScore is the credit scoring model created by the major three credit agencies to provide an alternative to FICO and is based on the same standards:
- The history of payment
- Type and age of credit
- New inquiries/new accounts
- Credit amount available
- Credit utilization
- Balances in size
VantageScore is unclear regarding the precise weight it gives to every category. It is, however, clear regarding the importance of paying bills punctually. A person's payment history is the sole factor that the VantageScore rates as "extremely significant."
Late Payments and Credit
Every lender wants to be sure that the borrower will settle their debt according to the terms agreed. They use credit scores and credit reports in a reversed manner to assess the amount of risk a person could be at. Suppose someone has established an established pattern of making their payments punctually. In that case, they are considered to be a responsible holder of credit and unlikely to cause the lender any financial loss. A history of past payment delays, on the contrary, indicates a lack of trust or financial instability. This can lead to a higher risk to the financial system.
The effects of late payments grow in severity as the account gets increasingly delinquent. The consumer's credit report shows the payment history in terms of lateness. These include on-time, 30 days late, 60 days late, 90 days late, and 120 days overdue—each level of lateness results in incrementally higher harm to the credit score over the preceding one.
Charge-offs, repossessions, collection, and bankruptcy indications of an inability to pay obligations can also be included. They can cause an even more severe impact on the consumer's score than late payment. As we said earlier, the cable or utility bill will not likely be reported until it is in serious arrears and collections. This usually occurs at the 90-day point following an unpaid bill. In the meantime, the customer will likely be slapped with penalties for late-payments and, ultimately, the suspension of service.
How Long Can Late Payments Cause Pain?
Credit reports show the history of payments on every account (open and close) they report; however, any tardy payment's impact on your score will decrease with time. Late and frequent late payments can do more harm to your credit score than one late payment that has disappeared from your memory.
VantageScore also explains that the biggest damage occurs to the consumer's credit score during the first month after the late payment has been recorded. Its impact decreases after approximately two years; following the period, it doesn't have any impact (although it is true that the payment is kept on the customer's file until 7 years). If you're having trouble with several recent late payments on your credit report, one of the most reliable credit repair firms could be able to repair the harm in your credit rating.