Traditionally, credit scores don’t take things like utility bill payments into account. Just like credit card and loan repayments, paying your utility bills shows that you are able to make payments, but credit measurers don’t tend to look at them as repayments, and this is what they’ve used to measure scores in the past.
For those who want to build up a credit rating without essentially paying back a debt they don’t want, this old system can be quite frustrating. However, according to a report carried out by This Is Money, some credit scores now include utility bill payments in their assessments.
For those wanting to build up a good credit score, for things like a business loan or a mortgage, this might come as good news, however it should be noted that this development is something which goes both ways, meaning that it can also have a negative affect on your credit score.
In this blog post, we talk through the ways the inclusion of utility bills can affect your credit score for the better, and the worse, as well as outline how you can make sure that you’re one of the people who use it to work in your favour.
The Good
As previously mentioned, it used to be the case that if you weren’t actively repaying something, it was really quite a challenge to build up a solid credit score. This is because credit scores relied on the information collected from this type of payment, and more appropriately repayment.
In order to improve credit scores, people would often take out and use a credit card for monthly expenses, such as for food bills and petrol, in order to pay them off again at the end of the month, in order to show that they were capable of sufficient budgeting and money management.
The good thing about some credit scores now accounting for utility bills is that those wanting to improve their score no longer need to take out a loan or credit card to essentially borrow money they never even needed. Instead, their credit score can be measured against the timely payment of utility bills, such as gas, electric and water.
What’s important to mention is that not all credit scores are adopting this practice—some are suck in their old ways. However, whether your credit score provider takes your utility payment into account or not, it’s definitely best to pay your bills on time regardless. Just because your credit score provider isn’t one which includes utility bills now, doesn’t mean that they won’t move to this system eventually, and then you could land yourself in a tricky situation.
The Bad
We’ve talked a lot about the good things that can come from the inclusion of utility bills in your credit score, but there are also some negative impacts that this change will have.
Most obviously, missing one utility payment can end up being damaging to your credit score, and this damage can be both difficult and time consuming to rectify. Unlike the regular payments that you might make back on a loan, utility bills are subject to change, and therefore, there’s more chance of you forgetting to keep enough money in your account, and being caught out by a surprise expense.
This change is also problematic for those who share utility bills, which is something that quite a lot of people do nowadays. Whether you’re a student or young professional in shared housing, or a landlord in charge of the utility bills for your rental property, the thought of being penalised over bill payments which you might not be able to help is scary!
Think about it, if you’re the utility account holder for your student house, there’s bound to be a situations where you have a problem getting money off one of your housemates sooner or later. It doesn’t seem fair that you’d be the one whose credit score is damaged in this situation, does it?
So, how can you avoid this happening?
Bill Management with acasa
Although you may not be able to completely eradicate the risk of missed payments to your utility provider, there is a way that you can minimise it. By using a bill management and splitting app, such as acasa, you can keep track of your utility payments in a simple and stress free way. Whether you just want a friendly reminder that your bills need to be paid, or need a full breakdown of who-owes-what in your shared housing, the acasa app can help.
So, what’re you waiting for? Download the acasa app and try it out for yourself!