Do Utility Bills Affect Your Credit Score? Everything You Need to Know

By Chika


Last Updated: September 29, 2022



Payment history and debt levels are crucial factors when it comes to calculating credit scores.

So it's easy to assume that paying or defaulting on your utility bills would affect your credit score. This is not usually the case. 

Paying your utility bills does not affect your credit score, but on the flip side, defaulting on them could cost you valuable points. This could make it difficult for you to get a loan at favorable rate. 

This article highlights how utility bills may affect your credit score and what you can do when to get your credit score back on track when you lose points for unpaid utility bills. 



How Do Utility Bills Affect Your Credit Score?

Though you would be charged late fees, missing out on utility payments by a few days will not cause problems for your credit score. 

However, falling behind on your payments by as much as 30 days will result to your account being reported as delinquent and transferred to collection agencies

If your unpaid utility bill stretches for months, the collection agency will then send a record of your account to the major credit bureaus. This information would then be entered into your credit file, which would cost you points your credit score. 

Even if you eventually have paid your outstanding bills, late payments remain on the credit report for seven years from when the delinquency occurred. As a result, obtaining a loan at this time would be difficult, since lenders would be aware of the fact that you missed utility payments when your credit record is pulled up.

In such a case, you should expect to pay a higher interest rate in the event that you do obtain a loan.



Does Paying Utilities Build Credit?

Although unpaid utility bills can lower your credit score, paying them promptly does not boost them. 

A credit score is a metric used to assess your creditworthiness - the probability of you paying back a loan.

Since utility bills are not loans, paying them cannot build your credit score. Secondly, utility companies are not obligated by law to report payment history. As such, your payments would most likely go unnoticed by the credit bureaus, thereby excluding them from your credit score calculation. 



What to Do When Your Bill is Sent to Collections

When your provider sends your account to collections, here is a list of things you can do: 

1. Check if you owe.

The first thing that you need to do is confirm if you really owe the debt.

Receiving a call from the collection agency does not validate debt. Besides, it's not out of the norm for a debt collector to contact the wrong person when trying to collect. 

If or when contacted, ask for proof of your indebtedness. Cross-check any information presented with your records. Albeit, if you owe utility bills, chances are you won't forget. 


2. Initiate a repayment plan.

Try to negotiate a repayment schedule with the collection agency if you are unable to pay the amount in full at once. Depending on your ability to pay, you could propose weekly or monthly repayment.


3. Negotiate a lower settlement.

You might be able to settle your delinquent utility account for less than what is outstanding, depending on your bargaining ability.

If you owe $1,000 in utility bills, you can haggle with the collection company to pay less than this amount. Collection agencies are likely to endorse this approach since they are interested in you paying up. 

Ensure that any settlement discussions are documented in writing so that the collections agency is aware of your arrangement. A verbal agreement has no legal significance or validity, particularly in a court of law.


4. Expunge the collections report from your credit file.

Waiting seven years to have your collections report expunged from your credit file can cause more financial challenges for you. As such it makes sense to tie your repayment with your credit score. 

Negotiate a pay-for-delete agreement with the collections agency. You can offer to pay all you owe in exchange for deleting the collections report from your credit file. Most collection agencies are willing to do this, since the aim is getting you to your debt.  



How to Build Your Credit

1. Make payments on-time.

Timely payment of bills is one of the best ways to build your credit. Credit scoring models like VantageScore and FICO use payment history as a metric when calculating your credit scores. Also, it tells lenders that you are financially responsible and capable of repaying your loan. 


2. Contribute above the minimum.

Monthly payments do not directly affect your credit score, but it does affect the amount of credit you are using - credit utilization ratio. This is calculated by dividing your credit card balance by your available credit. 

Paying above the required minimum amount lowers your credit utilization ratio, which improves your credit score. However, when you pay the required minimum, your balance reduces by a small amount each month, but your credit utilization ratio remains high. This is not good for your credit score. 


3. Track your credit score.

Tracking your credit score allows you to know where you stand and make necessary adjustments to boost your score on time.

You can track your score by obtaining a free copy of your credit score. Since the law permits you a free report from each of the three credit bureaus once a year, you can obtain a report once every four months.

The benefit of tracking your credit is that it allows you to take preemptive steps to boost your credit score if you notice that you are losing points. 


4. Fix any mistakes on your credit report.

Sometimes there could be mistakes on your credit report.

This may come from omission, miscalculation or carelessness. Nevertheless, such mistakes come with negative effects on your credit score.

As such, it is important that you go through your credit reports to detect any mistake. Make sure you contact the credit bureau as soon as you spot any mistake or discrepancy. It will be helpful if you can present evidence to support your case.


5. Do not accumulate debt.

Debt can be a life saver, especially when we do not have enough finances to meet our present needs.

However, being wholly dependent on debt to get ahead in life is akin to digging a hole for yourself. The more debt you take on, the higher the risk of not paying, which in turn affects your credit score.

As such, if you want to boost your credit score, then reducing your debt is an obvious choice. You can start by reducing high-interest debts like credit cards. 


6. Increase your assets.

Debts are liabilities which significantly impact your credit score in a negative way.

On the other hand, assets boost your credit score - though not directly. Owning assets means that your net worth has increased. It also tells lenders that you have the financial discipline to pay back your debt since you've been able to acquire assets from your income and savings. 

Assets can also be used to generate cash flow, making you more liquid than someone who has no asset to show. As a result, you can use assets to boost your credit score. However, this should be a short term goal, as accumulating assets is a prerequisite to achieving financial independence in the long term. 



Key Takeaway

Utility bills can hurt your credit score if they are left unpaid for a period. On the flip side, timely payment of your utilities would not boost your credit score. This is because utilities are not loans, and as such are not used when calculating your credit score which in essence is a calculation of how credit worthy your are. 

Also bear in mind that your credit score is not a guarantee that the lender would approve your loan request.  Other factors such as income are considered when deciding if you are eligible for a loan. 

Photo by Joy Singh


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