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Understanding How Bills Affect Your Credit Scores

At O1ne Mortgage, we understand the importance of maintaining a good credit score. In this article, we will explore how different types of bills can impact your credit scores and provide tips on how to manage them effectively. For any mortgage-related needs, feel free to call us at 213-732-3074.

Do Bills Affect Your Credit Scores?

Yes, certain bills and how you pay them can significantly affect your credit scores. Credit scoring companies use statistical analysis to predict whether you’ll repay borrowed money. They base their calculations on the contents of your credit reports, specifically the payment history compiled by the three national consumer credit bureaus: Experian, TransUnion, and Equifax.

Issuers of consumer credit, such as banks and credit card companies, report your bill payment information to the credit bureaus. This helps lenders identify potential borrowers who pay their debts on time. While payment history isn’t the only factor affecting credit scores, timely payments generally lead to higher scores.

Debt collection companies also report payments they are pursuing to the credit bureaus. Collections can include any unpaid bills, not just those related to loans or credit, and they tend to negatively impact your credit scores.

Types of Accounts That Can Impact Credit Scores

Traditionally, credit reports have recorded payments on two types of debt: installment loans and revolving credit accounts.

• Installment Credit: This is a lump sum of money you borrow and repay in equal payments over a set period. Examples include student loans, car loans, and mortgages.
• Revolving Credit: This includes credit card accounts and home equity lines of credit (HELOCs), allowing you to borrow against a set credit limit and make varying repayments, as long as you meet the minimum payment each month.

How to Get Credit for Your Bills

Experian Boost allows you to add your history of certain eligible household bill payments to your Experian credit file. This could help improve your FICO® Score based on Experian credit data. You can choose which bills’ payment information to share, and Experian Boost will add up to two years’ worth of payment history to your Experian credit report. Eligible bills include:

• Phone bills (mobile and landline)
• Utility bills (gas, water, electricity, and solar)
• Insurance (excluding health insurance)
• Residential rent (if paid online)
• Internet, cable, and satellite bills
• Video streaming subscriptions
• Trash collection services

Experian Boost only considers on-time payments and ignores late payments, so using this free feature cannot hurt your FICO® Score. The impact on your FICO® Score 8 will be shown as soon as you share new payment information through Experian Boost.

What Else Affects Your Credit Scores?

Payment history is the most significant influence on your credit scores, accounting for approximately 35% of your FICO® Score. Other factors include:

• Credit Usage: The credit available to you and the portion you’re using accounts for about 30% of your FICO® Score. Keeping your credit utilization ratio low can promote credit score improvement.
• Credit Management Experience: A track record of handling credit over time is a sign of creditworthiness. This is measured by the age of accounts, responsible for roughly 15% of your FICO® Score.
• Variety of Accounts: Lenders appreciate borrowers who can balance multiple debts, including a combination of installment loans and revolving credit. This is summed up in a factor known as credit mix, accounting for about 10% of your score.
• Recent Credit: Applying for new credit and taking on new debt can cause a temporary dip in your credit scores. They typically rebound within a few months if you keep up with all your payments. New credit activity is responsible for about 10% of your FICO® Score.
• Serious Negative Events: Negative credit report entries, such as collections and bankruptcies, can severely impact credit scores. A Chapter 7 bankruptcy, for instance, remains on your credit report for up to 10 years and may decrease your ability to get new credit during that time.

The Bottom Line

Historically, only debt-related payments influenced your credit scores. Now, certain other monthly bill payments can also help your credit scores, powered by Experian. Ultimately, your ability to balance debt repayment is most clearly reflected in the strength of your credit scores. If you are planning to apply for new credit or want to know where you stand, checking your credit report and credit score for free can help you find areas of improvement.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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