What Bills Help to Build Credit?
Your bills may not directly impact your credit score, but there's a way they can help.
Justin Cupler
Contributing Writer at Tally
August 5, 2021
Your credit score directly reflects how well you pay your bills — specifically your debts to various creditors. This often leads to confusion as to what bills help to build credit and which ones have nearly no bearing on credit scoring.
We'll help clear this up by discussing what monthly bills have no direct impact on your credit score and how you can make it so they help with your goal of building credit.
Do my monthly bills build credit?
Typically, no, your monthly bills, such as your cable bill, electricity bill, water bill and cellphone bill, have no impact on your FICO credit score. They can, however, negatively impact your credit score if you don't pay them and the company sends the unpaid bill to collections.
Once a utility bill goes to collections and the collection agency reports the activity to the credit bureaus, you'll likely see a sharp credit score decrease.
There is, however, one small exception to bills not impacting your credit score, and that's Experian Boost.
Experian Boost allows you to link a wide range of monthly bills and subscriptions to your Experian credit report, including your bills for:
Cellphones
Landline phones
Cable or satellite
Gas
Electricity
Water
Trash
Streaming services (Hulu, Disney+, Netflix, etc.)
To use Experian Boost, sign up for the service online, connect your bank account and Experian will monitor your account for utility payments. It then applies these utility payments to your credit history, which can impact your FICO score immediately and in the future.
The average credit score increase from Experian Boost is 10 points, but it's not uncommon to see no immediate increase.
Keep in mind, this will only impact your Experian credit report. It'll have no impact on your TransUnion and Equifax credit reports.
How can using a credit card change this?
By changing the way you pay your monthly bills, you can make it so they all play a role in building credit — albeit, an indirect role.
You can set your budget so you pay all your monthly bills with a credit card — at least the ones that accept credit card payments. Then, you pay off the credit card balance by the due date to avoid any interest charges.
By using your credit card to pay your utility bills and paying them off in full, you're establishing a good payment history. Your payment history accounts for 35% of your FICO credit score, so it can help you build a good credit score over time.
What are the pros of paying bills with a credit card?
Aside from the potential credit score increases with on-time payments, there are various other pros of paying your monthly bills with a credit card.
Report to all the major credit bureaus
Most credit cards report your balance, payment history, credit limit and other details to all three major credit bureaus: Experian, Equifax, and TransUnion. This ensures your positive payment history builds across all three reports and can boost your credit score no matter which reports a prospective lender looks at.
Streamline cash flow
When you pay your monthly bills with a credit card, you don't have to worry about having enough cash in your bank account on each bill's due date. Instead, you can simply pay the bill with the card and pay off the card at the end of the billing cycle.
This is especially beneficial for people who get paid just once a month or those whose pay varies throughout the month. They can allow their pay to accumulate throughout the month and pay off the card in one shot.
Earn credit card rewards
If you use a credit card with reward points or cash back, you can pay your bills and get rewarded. Whether it's statement credits, gift cards or credits toward travel, you will get the same rewards for paying your bills as you would using your credit card for other purchases.
Enjoy additional credit card perks
Beyond the credit card rewards, some credit cards also offer special perks just for holding the credit card. These can include discounted merchandise or subscriptions, rotating special offers, free travel benefits, free credit reports and scores, and more.
What are the cons of paying bills with a credit card?
The pros of paying bills with a credit card are enticing, but there are some cons to consider too.
Credit utilization
When you use a credit card to pay your bills, your credit utilization rate — your credit card balance relative to your credit limit — may increase if the credit card company reports your balance before you pay it off. If that utilization is over 30%, your credit score could decrease, as it accounts for 30% of your FICO credit score.
Length of credit history
If you choose to open a new credit card to pay your bills, this new account could lower your length of credit history. The length of credit history makes up 15% of your FICO credit score and looks at three key factors:
The average age of your credit account, the age of your oldest account, and the age of your youngest account
The age of specific types of credit
How long it's been since you've used each credit account
Adding a new credit card account to pay your monthly bills could result in a slight credit score decrease.
Credit check
If you plan to get a new credit card to pay your monthly bills, you will have to submit to a hard credit check. This allows the credit card issuer to see your credit file and verify your credit is good enough to approve you for the new credit card.
A hard credit inquiry impacts the "new credit" factor, which makes up 10% of your FICO score, and can have a small negative impact on your score for up to 12 months.
If you have bad credit or no credit, the credit card issuer may decline you. Plus, the hard credit check will remain on your report, potentially dropping your credit score even more.
Interest rates
When using your credit card to pay your monthly bills, the goal is to pay off the credit card by the due date to avoid any interest charges. If you forget to pay the bill, cannot pay it by the due date or have to make less than a full-balance payment, you will incur interest charges.
Credit card interest rates can be 20% or higher at times, so these charges can add up over time.
Annual fee
Some credit cards charge an annual fee. These fees can sometimes be $100 or more and can completely negate any perks or credit card rewards you may get.
Always check the full terms of the credit card before signing up, as credit card companies must disclose any annual fees.
Late payments
Managing a credit card requires discipline, as one late payment can throw a wrench into your goals. If you happen to forget a payment or just can't make your payment on time, you'll incur a late payment fee once your due date passes. On average, this fee is $36.
If you fail to pay within 30 days of your due date, the credit card company can submit your late payment to the credit reporting agencies. This will impact your payment history, which will result in a credit score decrease.
Rent payments
Most monthly bills will accept a credit card as payment, but rent payments aren't always so flexible. Many times, landlords require a personal check or a money order for rent payments. So, there's a good chance that one of your largest monthly expenses will have to come from your bank account.
Low credit limit
Keep in mind that credit cards have a credit limit. If you have fair credit or no credit at all, you may get stuck with a credit card with a credit line that's too low to pay your monthly bills.
This is especially true if you have a secured credit card, which generally has a low credit limit and requires a security deposit that matches the credit limit.
Build your credit by paying bills
What bills help build credit? Except for the Experian Boost option, your monthly utility and rent bills have no direct impact on your credit score.
Fortunately, with careful credit card use, you can build credit by paying bills and enjoy the perks that come along with it.
However, you must be aware of the potential downsides of using a credit card, including increased credit utilization, decreased length of credit history, hard credit checks, annual fees, and more.
If you find you've overextended yourself with credit card debt, Tally's credit card payoff app can help. It includes a lower-interest line of credit1 that allows you to save money on interest charges and get out of debt quicker.
1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate.