Despite careful planning of your finances, it is always possible that an unexpected expense could leave you struggling until payday. For those who do not have access to savings or traditional forms of credit, such as overdrafts and credit cards, this can lead to a financial emergency. This is especially true for those with a […]
Do Utility Bills Affect Your Credit Score?
If you’re trying to improve your credit score, it’s important to take into account every detail which might make a mark. In some cases, this could even include your utility bills – how you pay them, whether you pay them on top, and whether you’re on top of them all.
Do Credit Reference Agencies Look at Utility Bills?
Sometimes. There are three major credit reference agencies operating in the UK – Experian, Equifax, and TransUnion. Each of these agencies follows a different set of standards and will calculate your credit score uniquely. This means a credit report from each agency may look slightly different and take different elements of your credit history into account.
However, this certainly doesn’t mean that you can rest easy. When you’re trying to do something as important as building a good credit history, every little detail matters. The first thing you should do is request a copy of your credit report. You can get a free copy from all three of these agencies, and this will give you an idea of what your starting credit score is and how the score is calculated.
What Will My Credit Report Say?
Your credit report will contain a lot of information relating to your credit history, including details of any loans or mortgages you’ve taken out and whether you make payments for these on time.
As far as utility bills go, if you always make your utility bill payments on time you probably won’t even see them mentioned on your credit report. This includes most household bills such as rent, energy bills, and broadband and phone bills, which are all considered non-credit accounts. Mortgage bills and credit card bills are credit accounts, and these will definitely end up on your credit score in one way or another.
However, if you’ve missed payments in the past, these may well show up on your credit report for up to seven years if the credit reference agency you’ve requested a report from takes this into account. Furthermore, if you owe a utility provider money and aren’t paying it, they could decide to take legal action in the form of CCJs, which will definitely go on your credit report and have a significant negative impact on your score.
Do Energy Providers Run Credit Checks?
When you switch to a new energy provider, you’ll probably be using energy in advance and paying in arrears for the energy you used. Because of this, energy providers might run a credit check to see whether you’re likely to pay your bills on time. This check might impact your credit score negatively just slightly, but even if your credit score is poor it shouldn’t be difficult to switch energy supplier. It’s a lot easier to be approved for a new energy tariff with a low credit score than a big loan, so don’t let this put you off switching if you’ve found a better deal.
Will Missing Utility Bill Payments Affect My Chances of Taking Out Further Credit?
Your credit score is effectively a tool for lenders to use when deciding whether to loan you money and how to set the terms of the loan. The better your score, the lower risk you are as a borrower, and so you’ll likely get more credit with better terms. The lower your score, the higher risk you present, so lenders will offer you less credit for worse terms.
Anything that brings your credit score down can affect your chances of taking out further credit, and this can include not keeping up with your utility bill payments. So yes, missing payments for utility bills can affect your credit score and thus have a negative impact on your chances of getting the loan you want.
If you’ve missed enough payments to warrant a default or a CCJ on your credit report, this will do more serious damage to your credit score than simply paying a few bills late – which some credit agencies might not even factor into your score. So whatever you do, make sure you’re paying enough back to avoid these significant black marks on your report. Your energy provider might also go to debt collectors to recoup missed payments, which can cause a lot of extra stress further down the line.
The chances are that even if you have seriously neglected to pay your bills, you will still be able to take a loan out somewhere. But you may end up with a high-interest loan designed for people with bad credit, which will mean you pay a lot of interest back in a short space of time and have low limits on your borrowing. Some lenders will completely refuse to loan to applicants who have certain things – such as CCJs – on their report, whereas others accept the trade-off of higher risk but more favourable loan terms.
Can Paying My Bills on Time Raise My Credit Score?
Historically, no. As non-credit accounts, utility bills did not impact your credit score unless you had missed payments and fallen behind on the bills. However, some credit agencies such as Experian now allow users to get credit boosts from on-time payments of utility and telecom bills. This is an opt-in service, because you’ll have to give the credit agency permission to connect to your bank account and scan for previous bill payments (which won’t be reported by the utility company if you’ve paid on time), but it can go some way towards rebuilding a credit score in need of some work.
How Can I Improve My Credit Score?
If you’re worried that your credit score isn’t good enough, it’s time to make some changes. Even if you’re not planning on taking any loans out imminently, you never know when you might need emergency credit. Building your credit score proactively is the best way to set yourself up for the future, so you don’t need to take out high-interest loans which can often be the first step to a cycle of debt.
There are plenty of things you can do when paying your utility bills to try and improve your credit score. You can set up a direct debit to pay your utility bills, thus making sure they are always paid on time and not missed. Plus, some utility providers will offer discounts to customers who pay this way.
You should also let your provider know if you think you might have to miss a payment. If you’re struggling to pay on time, some providers will let you negotiate a payment schedule that works better for you, avoiding black marks on your record over bills.
Finally, make sure you shop around to get the best deals on energy. You might be surprised how much money you can save, with some energy providers literally halving the bill for you. It’s usually better to be on a fixed rate tariff rather than a flexible rate tariff, as these will keep your prices lower for longer.
And of course, the most important thing is just to keep on top of your utility bill payments. If you fall too far behind, not only could you have a black mark on your credit report but your provider could cut you off or fine you for non-payment. If you’re receiving warnings about overdue bills, don’t ignore them. The longer you wait to pay, the more likely you are to end up with legal action such as CCJs being taken out against you and serious lasting damage done to your credit report.
The Final Verdict
If you just want the quick answer, then: depending upon your credit agency and your payment history, missing utility bill payments can affect your credit score. They’re much more likely to flag up on your report if you’ve missed lots of payments or your utility provider has started taking legal action out against you.
To avoid serious black marks on your credit report, pay your utility bills on time. If you’re struggling to do this, get in touch with your provider and try to come up with a payment plan together. Energy providers want to avoid the hassle of legal action and debt collection, so it’s in their interests to work with you to make sure you can pay on time without action being taken.
Unfortunately, energy bills are a necessary expense for most people, so they should be prioritised in your monthly budget. Setting up a direct debit so that they’re paid just after pay day every month might be one way to make sure they’re always paid on time.