What bills increase credit score?

Building and maintaining a good credit score is crucial for various aspects of your financial life. A strong credit score can unlock lower interest rates on loans, better terms on credit cards, and even improve your chances of renting an apartment or securing a job. While many associate credit scores solely with credit cards and loans, the good news is that other types of bills can also contribute positively to your credit history. This article explores which bills can help boost your credit score and how to leverage them for financial success.

Understanding Credit Scores and Their Components

Before diving into specific bills, let's briefly recap what a credit score is and what factors influence it. A credit score is a three-digit number that represents your creditworthiness. Lenders use this score to assess the risk of lending you money. The most commonly used credit scoring model is FICO (Fair Isaac Corporation), but VantageScore is also gaining popularity. Both models consider similar factors, although they may weigh them differently.

The key components of a credit score include:

• Payment History (35%): This is the most significant factor. Paying your bills on time is crucial.
• Amounts Owed (30%): This refers to the total amount of debt you owe relative to your available credit (credit utilization).
• Length of Credit History (15%): A longer credit history generally indicates lower risk.
• Credit Mix (10%): Having a mix of credit accounts (e.g., credit cards, installment loans) can be beneficial.
• New Credit (10%): Opening too many new credit accounts in a short period can negatively impact your score.

Traditional Bills Reported to Credit Bureaus

Traditionally, only certain types of bills were reported to credit bureaus. These primarily included:

• Credit Card Payments: Responsible credit card use is paramount. Making at least the minimum payment on time, every time, is essential. Aim to pay the balance in full to avoid interest charges and further boost your creditworthiness.
• Loan Payments: This includes installment loans like auto loans, student loans, and personal loans. Consistent and timely payments demonstrate your ability to manage debt.
• Mortgage Payments: As a significant financial commitment, timely mortgage payments are crucial for building a strong credit profile.

These accounts are automatically reported to the major credit bureaus (Experian, Equifax, and TransUnion) by lenders. Late payments or defaults on these accounts can significantly damage your credit score and remain on your credit report for several years.

Non-Traditional Bills and Credit Reporting Services

While the bills listed above are automatically reported, other recurring bills, such as utility bills, rent, and cell phone bills, typically aren't reported to credit bureaus unless you fall behind on payments and the account is sent to collections. However, several services are emerging that allow you to report these non-traditional bills to credit bureaus, thereby helping you build credit.

1. Experian Boost

Experian Boost is a free service offered by Experian that allows you to add positive payment history from utility bills (gas, electricity, water), cell phone bills, and streaming services (Netflix, Hulu, etc.) to your Experian credit report.

Here's how it works:

• You connect your bank accounts to Experian Boost.
• Experian scans your transaction history for eligible payment activity.
• You choose which accounts you want to add to your Experian credit report.
• Experian adds the positive payment history to your report, potentially boosting your score.

Important Considerations for Experian Boost:

• Only impacts your Experian score: It doesn't affect your Equifax or TransUnion scores directly.
• Must have consistent payment history: The service works best if you have a history of paying these bills on time.
• Not guaranteed to increase your score: While many users see a boost, it's not guaranteed, and the impact can vary depending on your individual credit profile.
• Check the fine print: Be sure to read the terms and conditions to understand how Experian uses your data.

2. Rent Reporting Services

Rent payments are often a significant monthly expense, yet they historically haven't contributed to credit scores. Rent reporting services bridge this gap by allowing you to report your rent payments to credit bureaus.

Examples of rent reporting services include:

• RentTrack: This service works with landlords to report rent payments directly to credit bureaus.
• RentReporters: RentReporters verifies your rent payments and reports them to TransUnion and Equifax.
• LevelCredit: LevelCredit reports rent payments and utility payments to credit bureaus.
• PayYourRent: This platform allows tenants to pay rent online and reports those payments to credit bureaus.

Benefits of Rent Reporting:

• Build credit with existing payments: You're already paying rent; reporting it allows you to leverage those payments to improve your credit.
• Helpful for those with limited credit history: Rent reporting can be particularly beneficial for individuals with thin credit files or those who are new to credit.
• May increase your credit score: Consistent on-time rent payments can positively impact your credit score.

Things to Consider When Choosing a Rent Reporting Service:

• Cost: Most services charge a monthly or annual fee.
• Which credit bureaus are reported to: Make sure the service reports to the credit bureaus that are most important to you.
• Landlord involvement: Some services require landlord participation, while others allow you to report payments independently.
• Reporting accuracy: Ensure the service accurately verifies and reports your rent payments.

3. Alternative Credit Data and Underwriting

Beyond Experian Boost and rent reporting, the financial industry is increasingly exploring the use of alternative credit data in underwriting and credit scoring. This involves using non-traditional sources of information, such as utility bills, cell phone bills, and even banking transaction data, to assess creditworthiness.

While not all lenders use alternative credit data, it's becoming more common, particularly for individuals with limited or no traditional credit history. Lenders that utilize alternative credit data may consider your payment history on these bills when making lending decisions, even if the bills aren't formally reported to credit bureaus.

Strategies to Maximize the Impact of Bills on Your Credit Score

Regardless of whether a bill is traditionally reported or requires a third-party service, certain strategies can help you maximize its impact on your credit score:

• Pay on Time, Every Time: The single most important factor is paying your bills on time. Set up automatic payments or reminders to avoid late fees and negative credit reporting.
• Keep Credit Utilization Low: For credit cards, aim to keep your credit utilization below 30%. Ideally, try to keep it below 10% for optimal credit scoring.
• Monitor Your Credit Report Regularly: Check your credit report from all three major credit bureaus at least once a year to ensure accuracy and identify any potential errors. You can obtain a free copy of your credit report from AnnualCreditReport.com.
• Dispute Errors: If you find any errors on your credit report, dispute them with the credit bureau and the creditor involved.
• Maintain a Mix of Credit Accounts: Having a mix of credit cards, installment loans, and other credit accounts can demonstrate your ability to manage different types of debt.
• Avoid Opening Too Many New Accounts at Once: Opening too many new accounts in a short period can lower your average account age and potentially decrease your credit score.

The Future of Credit Scoring

The credit scoring landscape is evolving. As alternative data sources become more readily available and accepted, we can expect to see broader adoption of these factors in credit scoring models. This could benefit individuals with limited traditional credit history, as it allows them to demonstrate their creditworthiness based on their payment behavior with non-traditional bills.

However, it's important to be aware of the privacy implications of sharing your financial data with third-party services. Always read the terms and conditions carefully and understand how your data will be used.

Conclusion

While credit cards and loans are the primary drivers of credit scores, non-traditional bills like utility bills and rent can also play a role in building and improving your credit. By leveraging services like Experian Boost and rent reporting, you can turn everyday expenses into opportunities to enhance your creditworthiness. Remember that consistent on-time payments are crucial, regardless of the type of bill. By adopting responsible financial habits and monitoring your credit report regularly, you can build a strong credit profile and unlock better financial opportunities.