Does electric bill affect your credit score? Does it build credit if you pay it on-time, and does it hurt your credit if you don’t?
What has changed in the past few years that others may not tell you?
And if power bill does affect your credit, then how to deal with it in order minimize its effect or even benefit from paying electricity bill on-time?
And what does it mean for an electric bill to be in debt or in credit?
These questions and more, I will be answering you in this short guide, in order to help you keep your finances in best shape.
Without further ado, let’s begin!
Do Electric Bills Affect Credit Score?
Electric bills could affect your credit score in some cases, but unlike loans and mortgage payments, indirectly, either negatively if your bill was late that an account in collections was created for it through a collection agency, or positively if you take the necessary step to start reporting on-time bill payments through a credit score bureau, as the default situation is that on-time payments don’t get reported to credit bureaus.
Here are more details about each case and how electric bills can affect your credit:
Does Being Late on Electric Bill Affect Credit?
Being late for few days on electric bill might not result in any effect on your credit score, however, if you fall far behind the due date without paying, 30 days or more for example, the electricity company might hand over your debt into a collection agency, which will create a collection account that could negatively affect your credit score.
This means that not paying your electric bill at all can also affect your credit, which could be a long-lasting effect.
That being said, it is better to not be late on paying electric bill or any other utility bill.
How Much Does an Unpaid Bill Affect My Credit Score?
The effect of an unpaid electric or utility bill might be different from one person to another, depending on the current credit score they have, but it could lower your credit score by as much as 100 points, which is usually enough to move you form one credit score category to a lower one.
For a healthy credit score, the negative effect of a late or unpaid electric bill could be higher than the negative score on an already low poor credit score.
How Long Des a Utility Bill Stay on Your Credit Report?
If your late utility bills enters an account in collection, it might stay in your credit report for around seven years from the date the account was created.
However, shall this happen, you may able to negotiate the deletion of this account by agreeing with the collection agency that you would pay the debt of your utility bill if they commit to remove the account in collection from your credit report, which could restore a healthier situation of your credit score.
Does Paying Electric Bill Build Credit?
While being late on electric bill might negatively affect your credit score, paying electric bills on-time doesn’t build your credit score as electricity companies don’t report on-time payments to credit bureaus.
But it is still important to pay electric bill on-time so that you don’t get an account in collections that would lower your credit score.
However, something has changed just recently that electric bills could build credit score if you take the initiative to report the bills you pay on-time.
But as I explained above, since electricity companies don’t actually report your payments to credit bureaus, you have to do it yourself, which where Experian Booster comes in.
What Is Experian Boost?
Experian Credit Boost is a new service from Experian credit reporting bureau, which allows you to report on-time paid utility bills like electric bills for example, and it would be used to improve your FICO credit score.
This service is free and could help quickly boost your credit score by paying electric or utility bills on time.
That’s how electric bills could build credit score.
What Is an Electric Bill in Credit or in Debit?
These two terms apply to electric bills if you are signed up to pay electricity bills through the direct debit payment procedure, where you assign a regular automatic payment from your bank account to your energy service provider.
The regular payment is usually a fixed payment that is decided in advance based on the average monthly usage of electricity that is estimated by the electricity company.
But because your usage is never the same from one month to another, the direct debit payment might be sometimes less, and some times more than your usage for a certain month, which is where the two terms come in:
Electric Bill in Credit Meaning
Electric bill in credit means that you have paid to the electricity company in a certain month more than what you have consumed in the same month, which means that the company owes you money.
While some companies might allow you to request a refund and get the money they owe you, but you might just need to keep it in credit as it would be used later in case that you consumed energy in another month more than what your direct debit payment is supposed to cover.
Electric Bill in Debit Meaning (Negative Balance on Electric Bill)
Electric bill in debit means that you have already used more electricity than what you have paid for through the direct debit payments you have done so far.
This means that you owe the company money.
Whether this amount of money of electric bill debt can affect your credit score or not depends.
In most cases, if you are using direct debit to pay for electricity, this would happen during winter when you consume more electricity, and the fixed monthly payment is usually set to be the average of what you consume around the year.
This means that in summer and spring, your monthly payments would usually cover the consumption during that period of the year, in addition to the difference that you are expected to owe to the company during winter.
Now if the company notices that the amount in debit starts creeping up too much, meaning that they have under-estimated your consumption in the first place, they might contact you in order to increase your monthly payment.
If this happen, you shall respond as soon as possible and increase the payment in order to make up for the difference, or you might end up having an account in collections that could affect your credit score.
Or, you could make a one-time payment to make up for the current debt you have, and then start reducing your consumption in order to lower your electricity bill in winter and in summer in order to stay within the limits that initially determined your direct debit payment.
Can You Pay Electric Bill with Credit Card?
Some companies allow you to pay your electricity bill with credit card, either at their office, or online.
You might also be able to pay your electric bill through prepaid debit cards.
The important question is:
Is it Wise to Pay Your Electric Bill with a Credit Card?
And the answer here depends on how that will affect your credit score.
Paying your electric bill with a credit card comes with a transaction fee that you or the electric company would be charged.
If you have the money to pay your electric bill, but you would get reward points or cashback if you pay it through credit card, and these rewards overweigh the transaction fee that you might pay, or if you don’t pay the transaction fee, then you may do so and then pay the credit card balance in full on time.
But if you plan to pay electricity bill through credit card because you don’t have the money to pay it, then this might be a bad idea as you might not be able to pay the credit card balance, which will result in both, lowering your credit score, and causing high interests and fees related to the credit card debt.
It also depends on how much it is going to affect your credit utilization rate, which might affect your credit score as well.
Can You Pay Your Electric Bill with a Visa Gift Card?
You might be able to pay an electric bill with a gift card as it is actually a prepaid debit card, and some utility companies allow their customers to pay their bills with debit cards.
However, some gift cards might be associated with certain retailers, and if this is the case, then you can use that gift card only to buy products and services from the retailer that offered this card in the first place.
Conclusion – On-Time Electric Bill Payment Protects Your Credit Score
Electric bills do affect your credit score in case that you go late on them to the extent that you end up having an account in collections because of the electric bill debt you have accumulated.
Always make sure to pay your electric bill on time in order to get an account in collections, which might hurt your credit score for being late on energy bills.
And while on-time bill payment didn’t use to help increase credit score, but with new services like Experian Boost, you can utilize on-time electric bill payments to build your score.