Does paying everyday bills such as insurance, utilities, and rent build your credit history and score?
The short answer is that non-payment of these bills hurts your ratings much more than being on-time helps – for now.
However, things are beginning to change. Lenders do want to approve unbanked or credit-invisible consumers. The industry is taking baby steps in response.
You do have options to report some bill payment data to the credit bureaus yourself. Learn which items count and why. However, the traditional scoring models may ignore some of the information for now.
Does Paying Insurance Build Credit
Paying insurance premiums does not build your credit history. Insurance companies bill in advance of providing the coverage. Therefore, carriers do not report positive or negative information to the bureaus because there is no risk of loss.
However, many property and casualty companies review your insurance credit score when making an underwriting decision. This signals something worth exploring – how nonpayment can hurt your ratings for 7 years or longer.
Paying auto insurance premiums on time does not help your credit score. The companies do not report to the bureaus because they bill in advance – even when you set up a monthly installment schedule.
However, car accident claims correlate with credit ratings. Therefore, several indirect influences are worth mentioning such as soft inquiries and possible unpaid premium effects.
Companies such as Geico, Progressive, and Allstate often consider auto insurance credit scores when making a policy underwriting and pricing decision. They pull a copy of your consumer report in order to do so. Research shows that drivers with good ratings file fewer claims and keep their policies longer.
The soft inquiry that logs on the file of the furnishing bureau does not affect your credit rating. You are not seeking a new borrowing relationship.
Unpaid car insurance premiums do not appear on your consumer report or go to a collections agency. However, after a 10 or 20-day grace period the company will cancel the policy.
A lapsed policy means that you will be an uninsured motorist in the event of an accident. The financial consequences of having a wreck while uninsured could ruin your credit score for 7 years or longer.
- Mechanic liens are public records that could appear on your consumer report if you do not have the resources to pay the body shop. The repair center may sue in court for compensation.
- Lost disability income benefits from the personal injury protection feature could make it difficult to stay current on other obligations if you are unable to work. Delinquencies on loans and revolving accounts will show on your consumer report.
- Vehicle repossession is a major derogatory mark that could appear on your consumer report. Most lenders require full coverage on the vehicle as part of the terms of the loan or lease.
Paying health insurance does not build your credit history. You pay these premiums in advance. The carrier is not lending money. Therefore, any positive or negative behavior will not appear on your consumer report and affect your score.
On the other hand, canceled coverage can have devastating implications on ratings.
Non-payment of health insurance will not go to collections or hurt your credit score directly. However, the coverage will lapse if you fail to make a payment after the grace period expires. The grace period is typically 90 days.
Canceled health insurance could affect your credit indirectly if you have a medical emergency. You will be 100% responsible for any doctor or hospital charges. These surprise expenses could make it impossible to stay current on loans and credit cards – which do appear on your consumer report.
Medical debt collection accounts are another possible side effect of lapsed health insurance. Hospitals and doctor offices frequently refer outstanding balances to collection agencies – who then report the negative mark to the bureaus.
An unpaid medical debt on your consumer report hurts credit score for 7 years – counting from the date of first delinquency. The special rules for posting delays and early deletions do not apply because you lost your health coverage via nonpayment.
Paying life insurance does not build credit history either. You pay life premiums in advance. Therefore, neither positive nor negative information appears on consumer reports.
Most life insurance policies have a 30-day grace period before coverage lapses for nonpayment. The credit score of beneficiaries may drop if the covered person dies shortly after the policy lapses.
The beneficiary (husband, wife, children, etc.) of the deceased may have difficulty staying current on loans and credit cards. The ongoing bills continue without the deceased person’s income or the death benefit.
Does Paying Utility Bills Build Credit
Paying utility bills on time does not build your traditional credit score (FICO or Vantage). Utility companies (gas, electric, water, internet, cable television, phone, and cellular) provide service before sending a bill. There is a risk of loss. Therefore, some information may appear on your consumer report.
However, two twists in the plot may affect your history and ratings: reporting of negative data only and the emergence of alternative bureaus and scoring systems.
Utility companies (gas, electric, water, internet, cable television, phone, and cellular) do not report on-time payments to the big three bureaus (Equifax, Experian, and TransUnion). Positive history builds credit scores, so these bills will not help your rating.
Simple Bills is an option to report utility bills paid on time to one credit bureau (Equifax). As of October 2018, they were working to include Experian and TransUnion reporting. Keep in mind that the scoring algorithms (FICO and Vantage) may not consider these positive data.
On the other hand, many utility companies report bills that are severely delinquent in order to help with collections efforts. They take this step before pulling the plug on the lights, cable, and phone service. Negative entries hurt your credit score and have for decades.
Paying your utility bills on time can now help you build an alternative credit score. Lenders are increasingly interested in marketing to people with no history in their traditional file. Several companies market alternative predictors using non-traditional data to fill this market need.
- The FICO XD model uses landline, mobile, and cable payment information, public records, and credit bureau data (if available) to score invisible consumers.
- PRBC is an alternative credit bureau and scoring system that can consolidate all of your bills (rent, insurance, internet, phone, utility, student loans, etc.) into a single consumer report and rating.
Does Paying Rent Build Credit
Paying rent on time may help build your credit history and score. Even though your rental payment is due the 1st of every month, the property owner faces a risk of loss because you can continue to occupy the property. Therefore, some information may appear on your consumer file, and some algorithms may bake it into their equation.
You just have to take steps to ensure the information appears on your file, and that your lender uses the score version that considers these data.
Your landlord does not have to report rent payments to the credit bureau in order for the information to help your score. Many property management companies and large apartment complexes do so already. However, smaller apartment buildings, single-family property owners, and on-campus dormitories may not have the capability.
Working through an online electronic payment service is the easiest way to have rent transactions reported to the credit bureaus. You can ask your landlord to process through one of these services, or set up the capability yourself.
Even if your rental payment information appears on your consumer file, it may not affect the credit score your lender uses to make a decision. The inclusion of these data is relatively new.
The equation version is one reason results often differ.
The scoring companies constantly revise and update their algorithms. However, only the newer versions consider these data. Lenders often take their time in migrating to the newest version.
|Version||Includes Rental Data|
|FICO Version 9||Yes|
|FICO Version 8||No|
|Vantage Version 3||Yes|