How Paying Bills Can Affect Your Credit Score

Paying a rent or phone bill late usually won’t affect credit scores, but if your debt goes into collections, scores may nosedive.

By Randi Gollin | American Express Credit Intel Freelance Contributor

6 Min Read | December 15, 2021 in Credit Score

 

At-A-Glance

Paying noncredit bills like rent, utilities, and medical expenses on time won’t bump up your credit score because they’re usually not reported to credit bureaus.

But if they’re very late or in collections, they’ll likely get reported and affect credit scores negatively.

The three major credit reporting bureaus must wait 180 days before putting medical debts from a collection agency on credit reports.

It’s relatively common knowledge that payment history carries the most weight in credit score calculations. Whether you pay bills on time, late, or entirely miss payments accounts for 35% of FICO credit scores, the most widely used credit scoring model for lending decisions. But did you know that when it comes to late bills affecting credit scores, not all bills are created equal? 

 

How Do Late Bill Payments Affect Credit Scores?

Late bills can affect credit scores in different ways because the credit reporting agencies – Experian, TransUnion, and Equifax – consider borrowing-related bills differently than other bills, like rent, utilities, and medical bills. One late payment on a credit card, personal or auto loan, or mortgage might have an immediate negative effect, though it would likely be small if it was only a single late payment. Consistent on-time payments for those credit-related bills helps improve your credit score.

 
But unless they become very late, everyday utility, cable, or cellphone bills are generally invisible to credit reports – and therefore not counted in your credit score at all. Meanwhile, late medical bill payments are often granted special considerations by credit agencies.


Let’s take a deeper dive into the various types of noncredit bills and how their late, missed, and on-time payments can impact your credit score.

 

How Does Not Paying Rent, Electric, or Phone Bill Affect Credit?

If a renter is less than five days late paying their rent, it should be no big deal. After that, a landlord may charge a late fee of 5% to 10%. And when a rent payment is 30 days or more past due, they can choose to report that late payment to the credit bureaus.1 In general, one late payment could lower your score by up to 80 points if you have a high credit score, according to Fair Isaac Corp., provider of FICO.2 Lower credit scores would lose fewer points from a single late payment because they already reflect a higher level of nonpayment risk, FICO notes.


If you’re late on one payment on a telecom bill – meaning, landline or mobile phone, internet, and cable TV – depending on the service provider, it probably won’t make any difference to your credit score. But missing multiple telecom payments – or neglecting an unpaid bill altogether – may negatively affect your credit score because your service provider might report the late or missed payments to one or more credit bureaus.


Much like telecom bills, utility bills like water, gas, and electric usually don’t surface on your credit reports unless you default. These utility bill payments typically affect your credit score most if you’ve missed so many payments that a service provider closes your account and transfers your debt to a collection agency to obtain payment, considers it uncollectible, or charges-off your account, concluding that you’re not going to pay the debt.

 
If those bills enter collection or are charged-off, they could affect your credit score unfavorably. If the collection agency opens a collections account in your name and sends a record of it to one or all of the three major credit bureaus, it will become part of your credit history. Missed payments, collections, repossession, and foreclosure are regarded as “derogatory marks” and stay on your credit file for seven years, even if you pay back the collection agency.3 While some newer credit scoring models won’t factor paid collections accounts into credit score calculations, older models may – and most lenders commonly use older credit scoring models when making lending decisions.4

 

Do On-Time Utility Bill Payments Hike Up Your Score?

On-time utility and telecom bill payments usually don’t influence your payment history, so it typically won’t help to raise your credit score, either. But that’s evolving, and there already are special circumstances. For instance, Experian offers an online tool called Experian Boost that lets you use your utility and telecom bills to garner recognition for a positive payment history. It can be particularly advantageous for people with little credit history or scores under 680. Once you give Experian the go-ahead to access your bank account and identify utility and telecom payments, you can ask to have it added to your credit file, and you may see an increase in your FICO score immediately, according to Experian.5

 

Can Medical Bills Ruin Your Credit?

Medical bills get special consideration. Credit agencies have found there are sometimes instances where people are not aware that a medical bill is owed, so the situation snowballs. Billing errors and insurance disputes can also lead to late payments. In fact, according to a Consumer Reports survey of 1,000 adults who had at least one outstanding medical expense above $500 in a two-year span, 24% didn’t realize they owed the bill, 13% said they didn’t get the bill to begin with, and 10% said it was erroneously sent to collections despite having been paid.6 Other circumstances, like large unexpected medical expenses, can also lead to account delinquency – even for people with excellent credit history.

 
Thus, it’s usually harder for past-due medical bills to hurt your credit score than for borrowing-related bills to do so. Instead of reporting delinquent bills to a credit bureau, health care providers send them to a collection agency, and then the information is reported to the bureaus – which takes time. And due to new regulations enacted in 2017, the bureaus must wait 180 days before medical debt reported by a collection agency appears on your credit report.7

 
If you’re working out a coverage dispute with an insurer, it’s a good idea to inform the health care provider and ask them to delay reporting late or missed payments. In certain states, you can appeal an insurance denial and, in some cases, you can negotiate the payment amount.

 
No matter the cause, if no resolution is reached, it is possible for late medical bills to ruin your credit. How big a dent medical bills make in your credit score also depends on the credit scoring model being used. Consumer Reports also notes that if a lender uses FICO Score 9, then your medical debt will be weighed less than other debts. That’s thanks to FICO’s recognition of all the issues just described. But the most widely used credit scoring model is still FICO Score 8, which counts all debts equally.

 

The Takeaway

With rent, phone bills, electric bills, and other utilities, on-time payments or one late payment won’t make any difference to your credit score, because they’re not considered credit accounts by the three major credit bureaus. But these bills may affect your credit score negatively if you’ve missed so many payments that a service provider transfers your debt to a collection agency. Medical bills can hurt your credit, too, if they go into collection. On the flip side, if you have an excellent on-time record with such noncredit-related bills, there are ways emerging for it to boost your credit score.

Randi Gollin

Randi Gollin is a freelance writer and editor who’s covered topics including shopping, travel, dining, and food for tech and media brands and digital publications.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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