How you pay off your cellphone bill may soon affect your credit score. Experian, one of three major credit bureaus in the U.S., announced that it will start factoring in phone and other utility payment history into some consumers' reports early next year, according to the Wall Street Journal.
Consumers will be able to opt into the program, which is called Experian Boost, by allowing Experian to track their payments. You simply need to link the bank accounts you use to make phone and utility payments to Experian.
How you could benefit
If you don't have a long borrowing history, which is likely the case if you've never taken out a loan or opened your own credit card, this could help you. Your credit score is a measure of how trustworthy you are in the eyes of financial institutions. Showing that you're consistent about paying your utility bills gives lenders more reason to think you're a safe bet.
With established credit, you're more likely to be qualified for some jobs and financial services. You may be able to pay smaller security deposits for apartments and lower insurance rates. And you could have more access to the best credit cards and competitive loan rates.
FICO determines credit scores by looking at your credit report for loan payment history, how much you owe, the length of your credit history, the types of credit you have and how often you apply for new credit. Commonly used FICO scores range from 300 to 850. A score of 700 or above is considered good and, once you're above around 750, you're in the excellent range.
This shift is "a good thing for people with thin or subprime credit. It's particularly advantageous for young adults who may be interested in applying for credit but don't have much of a credit history," says CreditCards.com industry analyst Ted Rossman.
According to Experian, 46 million U.S. consumers have "thin" credit files, meaning less than five loans or other accounts. By using Experian Boost, those consumers could see their scores increase immediately after they link their bank accounts. And around 1.5 million consumers with no scores could receive a score.
The program will not track missed payments and, if consumers stop paying bills for three consecutive months, Experian will delete the account, which may revert your score back to what it was before you added the information.
What's driving the change
This move is the latest in a series of efforts from credit report agencies to increase scores as lenders look for new ways to assess risk levels.
Last year, Experian, Equifax and TransUnion announced a plan to overhaul how negative information is handled on credit reports. They began stripping tax-lien and civil-judgement data and removing collection accounts, which raised scores in some cases by more than 40 points.
In October, FICO announced that it will launch a new scoring system, the UltraFICO score, that will account for your checking and saving account information.
"I like this even better than UltraFICO," says Rossman. "With UltraFICO, access to your banking history and balance seems like it could be a slippery slope. But with Experian Boost, it's all about showing you've paid recurring bills on time, which is a natural fit for building solid credit."
What should you do differently
Your lifestyle can stay pretty much the same, even after your credit score goes up. You should continue to prioritize paying bills in full and on time, for example.
And having a better score doesn't mean you should start recklessly borrowing money. "There's no question that just because somebody will lend you money doesn't mean you should take it," says Matt Schulz, chief industry analyst at CompareCards.
"You are the best judge of your ability to take on a new loan," he adds. "It's important that people have a good feel for their own financial situation before they say yes. Taking a loan or a credit card that you don't think you can handle is a recipe for trouble."
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