Although utility bill payments are not reported to the credit bureaus, these payments may have some impact, albeit indirectly, on the credit score.
So, utility bills can impact your credit score. Unlike credit cards or loans, utility bills are not reported to CIBIL, unless they are sent to collections.
Utility bills can affect credit score in these ways:
Payment history: If you regularly pay your utility bills, it will not directly give an impetus to your credit score since timely payments are not usually reported to credit bureaus.
However, in case you miss payments and your utility account goes into collections, it can have a negative impact on your score.
Debt-to-income ratio: Your utility bills are seen as part of your overall financial obligations. While they may not directly affect your credit score, they can indirectly impact your ability to procure loan.
Lenders often consider your debt-to-income ratio when evaluating your creditworthiness. If your utility bills are consistently high compared to your income, it could affect your ability to seek loans or credit cards.
Rental applications: Some landlords may check your utility payment history as part of the rental application process. If you have a history of late payments, it could make it more challenging to secure a rental property.
ALSO READ: How you can negotiate lower interest rates with a good credit score?
Credit inquiries: In some cases, utility companies may perform a credit check when you apply for their services, such as electricity, water, or internet. These are known as hard inquiries and can temporarily lower your credit score.
However, the impact is typically minimal compared to other factors such as payment history and credit utilisation.
While utility bills themselves may not directly impact your credit score, managing them responsibly can indirectly contribute to maintaining or improving your creditworthiness. It’s essential to pay your bills on time, keep your debt-to-income ratio in check, and address any outstanding debts promptly to avoid negative consequences for your credit score.
Frequently Asked Questions:
How often should you check your credit score?
Most experts recommend to check the credit score at least once a year.
Why is this important to pay bills on time?
Payment history is a significant factor in determining your credit score. Even a single missed or late payment can negatively impact your score.
Is payment of debt enough to maintain a good CIBIL score?
Paying off debt is indispensable to maintain a good credit score. However, it is a responsible financial management that leads to a good CIBIL score.
Does a high CIBIL score offer better rental opportunities?
Landlords may also check your credit score when evaluating rental applications. A high CIBIL score can, therefore, raise your chances of securing rental housing, particularly in competitive rental markets.
Can there be mistakes in credit reports?
It is not uncommon to spot mistakes on credit reports. So, regularly checking your credit score allows you to spot any errors, such as inaccuracies in personal information or incorrect reporting of payments.
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Published: 21 Mar 2024, 12:17 PM IST