Phone Bills and Your Credit Score: Myths vs. Reality

Article by: Alfred Holland - Casino Еxpert

Date Published: 30/08/24

Have you ever wondered how much the phone bill credit score affects your chances of getting credit? Often left open to speculation among UK consumers, our aim in this blog is to separate the myths from the realities, explaining what really happens whenever you take out a phone contract.

Understanding Credit Scores

In simple terms, a credit score is the numerical representation of creditworthiness, based on your credit history. This score is calculated by credit reference agencies using a wide variety of available data, including payment history, the amount of debt owed, length of credit history, new credit enquiries, and types of credit used.

How phone bills affect your credit score can vary in the United Kingdom, depending on the type of contract and whether it involves a credit agreement. Read on and we shall explain everything in more detail.

What Are Credit Reference Agencies?

There are three main credit reference agencies (CRAs) in the United Kingdom:

• Experian
• Equifax
• TransUnion

Each of these credit reference agencies gather information about you from public sources, plus lenders and any other service providers. The credit score they generate is based on all the data recorded in your credit report, although each have different methods of scoring.

But why does your credit score matter and what makes it important? Well, your credit score can influence favourable access to many financial products and services, impacting your economic health and opportunities available. These include:

• Loan and Credit Approvals: Lenders use credit scores to evaluate the potential risks when you borrow money, such as for loans, mortgages, and credit cards. Higher credit scores can increase your chances of approval for such financial products.
• Interest Rates: With a higher credit score, you can often receive lower interest rates on loans and credit cards, reducing the overall cost of borrowing. However, lower credit scores can potentially lead to higher interest rates.
• Rental Applications: Landlords and property agents can only check your credit score with your agreement. But some do seek permission to do a “soft search” for information that’s already public, such as if you are bankrupt or have any County Court Judgements.
• Insurance Premiums: Some insurance companies check credit scores with credit reference agencies, before offering policies and setting premiums. Higher scores can lead to lower insurance costs and vice-versa.
• Employment For positions that involve financial responsibility or handling sensitive data, certain employers may seek to review your credit score as part of the hiring process, albeit informing you of the need to do so and only with your permission.

Phone Bill and Credit Score Myths

Do phone bills affect credit scores? Don’t worry if you’re not entirely sure because it’s a grey area for many people, and especially in the UK, where answers to this very question are not always entirely clear.

To provide some clarity, we shall bust a few of the most common myths that surround phone bills and credit scores, explaining the realistic circumstances in each scenario.

Myth 1: Every Phone Bill Payment Affects Your Credit Score

This first misconception actually depends on the type of mobile phone contract you have, often leading to confusion about what is and isn’t covered under the Consumer Credit Act in the UK.

If you have a regular “Service Agreement” with the phone company, then your contract is not subject to the Consumer Credit Act 1974 ^[1], so it shouldn’t affect your credit score. The bills you pay are for airtime service only, which basically means calls, text and data usage.

However, when your contract includes a mobile phone or tablet device that’s paid for monthly, then you will be subject to a “Consumer Credit Agreement” with the phone company. This “Device Plan” usually appears as a separate cost on your phone bill.

Essentially, while a “Service Agreement” should not affect your credit score, the credit or finance of a “Device Plan” may affect your credit score. Making payments on time will affect your credit score positively, while failing to make payments will impact your credit score negatively.

Myth 2: Missing One Phone Bill Payment Will Destroy Your Credit Score

Do phone bills affect your credit score if you happen to miss one payment? The simple answer is yes if you have a “Device Plan” in place, given this is a form of “Consumer Credit Agreement” and any missed payments may be reported to credit agencies.

If you resolve the issue quickly, that information can also be provided to the credit agency, so just one late payment is unlikely to cause any serious harm to your credit score.

If the missed payment is recorded on your credit report, and it will remain there for six years, but the impact of that missed payment on your credit score will also reduce over time.

Nevertheless, if you fail to take any action and neglect to make the payment owed, the debt could eventually be sold to a debt collection agency, which does have a much greater impact on your credit score.

Myth 3: Paying Your Phone Bill Early Improves Your Credit Score

Sadly, this is one of those phone bill myths that everyone wishes was true. In reality, while any late payments are often recorded with credit bureaus, that’s rarely the case for early payments, although there are some exceptions.

If your account happens to be in arrears, then early payment of what’s owed will return your account to good standing, and usually be reflected in your credit report. However, simply paying your monthly bill earlier will not affect your credit score.

When you have a “Device Plan” in place for a mobile handset or tablet device, instead of continuing to make the monthly payments, most phone companies in the UK will allow you to settle the outstanding balance in one payment.

Should you choose to settle the “Device Plan” contract early, the phone bill payments associated with this Consumer Credit Agreement will be resolved, and in this case your credit score will be impacted positively.

Phone Bill and Credit Score Realities

Now that we have debunked some of the most common myths, it’s time to take a closer look at the realities of how phone bills do impact your credit score.

Positive and Negative Impacts

Do phone bills build credit scores? If you pay your phone bills on time, the impact will actually be positive, and contribute towards boosting your credit score with credit reference agencies. This is one of the reasons why mobile contracts are sometimes viewed as a good way to improve credit scores, providing you maintain the payments.

Missing or failing to pay phone bills can have a negative impact, reducing your credit score when defaults are added to your credit record. If you have a basic type of contract that doesn’t include credit for a device in the package, it’s also possible the phone company may not record your payments with a credit reference agency.

Understanding Your Phone Contract

As we mentioned earlier while focusing on common myths, it’s important to know the difference between “Service Agreements” and “Credit Agreements” in your phone bill ^[2]. For this reason, it’s always helpful to check the terms and conditions of your contract and ask your phone company if uncertain.

While the “Service Agreement” for calls and data might not be recorded in your credit report, any “Credit Agreement” for the purchase of a mobile device will be recorded. Likewise, mobile phone contracts are not subject to the Consumer Credit Act, so make sure to ask providers how either type of agreement could potentially affect your credit score.

Long-Term Phone Bill Debts

Eventually, whenever your phone bills go unpaid for any significant length of time, there’s every chance the phone company will pass the debt on to a collections agency. Obviously, this will be detrimental to your credit score, as missed payments and debts can stay on your credit record for six years, before being removed ^[3].

Before referring your debt to any third-party collections agency, the phone company should make every effort to communicate and solve the matter directly with you. We highly recommend attempting to resolve any payment issues promptly, as positive steps to clear debts will also be recorded in your credit score.

How to Manage Your Phone Bills and Support Good Credit Health

Keeping on top of your phone bills doesn’t have to be complicated, and can save you hassle further down the line, particularly if you wish to maintain a healthy credit score. Here are some tips that will help:

• Use automatic payments like direct debits or standing orders for monthly phone bill payments, ensuring that so long as the funds are available in your bank account, you will avoid missing payment deadlines.
• Check and review your phone bills regularly for any inaccuracies, which might include incorrect charges or unexpected changes to the original contract.
• Always contact your service provider if you anticipate missing a payment deadline. In most cases, you can explore alternative options like payment plans or bill scheduling.

These days it’s possible to pay for many online services and products via your mobile phone bill, instead of using a credit card or bank transfer.

For example, there are some deposit by phone bill casinos in the UK offering this convenient form of payment as an option. We only review and recommend those holding a UK Gambling Commission licence.

But for any such services, always make sure to keep track of how much you spend and be prepared to add this amount to your next phone bill payment. Likewise, check that any amounts are correct, matching the deposits or payments for products or services purchased online.

In addition, when asking whether phone bills build credit, the answer is yes, they can. So long as your account payments are in good standing, consistently paid phone bills will have a positive impact on your credit score. They demonstrate your capacity to responsibly make timely payments and manage your finances well.

Steps to Take if Your Credit Score is Impacted by a Phone Bill

Even with the best of intentions, there are times when life gets in the way and we can’t keep up with bill payments, including those for a phone. Always check to make sure that bills are accurate and without mistakes, and try to avoid missing payments, as this will inevitably affect your credit score.

Always check your credit score at least once every year. If you spot any errors or incorrect data, you can raise a dispute with the credit reference agency in writing, accompanied by supporting documentation you have available. They have 28 days to respond and make corrections or inform you why they don’t agree with your request.

In the worst-case scenario and if a phone bill debt is passed on to a debt collection agency, don’t panic. Here are some useful and practical steps you can take to make the process less complicated.

• Review all documentation relating to the phone bill debt, including the amount owed, the original creditor, and any correspondence from the collection agency.
• Verify the debt is legitimate and that any amounts indicated are correct. You also have the right to request proof of the debt.
• Check and become familiar with your rights under the Consumer Credit Act 1974. Also, ensure that any collections agency is adhering to the rules established by the Financial Conduct Authority (FCA).
• Regardless of any phone conversations, always ask for written communication so that you have a record of all correspondence or agreements, before making any payments.
• When possible, offer a lump sum payment to reduce the debt amount. Collections agencies can sometimes accept less than the full amount if paid upfront.
• If you can’t pay a lump sum, propose a realistic payment plan and ensure that it’s affordable for you. Request that any additional fees or interest are waived.
• Never be afraid to seek professional or legal advice. Citizens Advice, StepChange, and National Debtline can provide free advice and support.
• Finally, stay calm and keep your emotions in check, take time to review any agreements before signing, and ensure that any new payment plan is sustainable to avoid further debt.

Stay Connected with Your Credit Score

Hopefully, the information we have provided will give you more clarity, so that you understand how credit reference agencies work, the relationship with your phone bills, and the potential impacts on your credit score. Always keep records of all transactions and stay up to date with payments, as these basic steps will help you to avoid problems and keep your finances healthy.