October 29 2009|02.39 PM UTC

Carrie Davis

Cell Phones and Credit: Another Reason Your Score Matters

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cell phone creditYou may know that a good credit score can help you get a new credit card, a car loan, or a mortgage at a low interest rate, but did you know that it’s also necessary for that essential modern-day accessory – the cell phone?

Good credit = cheaper wireless

Like mortgage lenders and credit card companies, cell phone providers check your credit before extending you those crucial minutes of monthly airtime. If you have poor credit, they may charge you additional monthly fees, an upfront security deposit, or just deny you service altogether. AT&T, for instance, charges iPhone users with bad credit up to $800 as a security deposit!

Watch out! Cell phones can also hurt your credit

You need good credit to get a cell phone. Conversely, having a cell phone can damage your credit. This drop in score can happen in a couple of different ways. First, when a wireless provider checks your credit it’s known as an “inquiry.” This inquiry into your credit report can ding your score slightly. It’s not a big deal (we’re talking around five points), just don’t apply for wireless service from several different providers at once.

The bigger way having a cell phone can hurt your credit is if you stop paying your bill. You may think the worst that can happen is having your service switched off. But what you may not realize is that your cell phone provider is likely to report your missed payments to the credit bureaus or turn your debt over to a collections agency. Either action means your credit rating takes a hit. Delinquencies and collection accounts listed on your credit report are likely to remain there, stubborn as mules, for up to seven years (even if you pay the debt in full).

The moral of the story? Pay your cell phone bill on time each month to avoid serious damage to your credit. And ask the wireless provider its policy on reporting your payments to the credit bureaus before signing the contract.

What if you have bad credit but need a cell phone?

Unfortunately, those with poor credit might have to settle for a higher-priced wireless plan or more expensive pre-paid minutes that don’t require a credit check. In the meantime, check your own credit to see how you can improve it. Once you get enough positive payment history under your belt, you’ll be able to qualify for the wireless plan of your choice without paying additional fees.

Carrie Davis is a personal finance blogger at SpendOnLife.com, a site dedicated to giving readers accurate information about credit, debt, and identity theft. She is FCRA-certified and has a passion for educating others on how to achieve financial independence. Follow Carrie through the SpendOnLife RSS feed or on Twitter @SpendOnLife.

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{ 6 comments… read them below or add one }

Jay October 31, 2009 at 11:19 am

I ran into this problem back in June when I bought my iPhone. The problem wasn’t bad credit, but NO credit – I’m one of those “old-fashioned” types who never had a credit card or borrowed money for anything. So it was a huge shock when I found out AT&T wanted a $500 security deposit from me! At first I legitimately could not understand why they needed one. To my knowledge security deposits are a form of risk management when the other party is taking a chance – ie, making a loan. With phone service I assumed lack of payment would result in terminated service and that would be that – where’s the risk? There seemed to be no connection between my creditworthiness and month to month wireless.

I actually called AT&T’s support line and told the guy “this would be like Home Depot asking for my batting average before I bought a skill saw.” Anyway, I wound up just paying the deposit and figuring if I had no credit to begin with at least this will help me build some.

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Carrie Davis November 2, 2009 at 9:27 am

Jay,
I know, wireless services should simply shut down your service, not require a hefty security deposit. Unfortunately, you’re not going to build credit by paying your AT&T phone bill on time each month. They don’t report your timely payments to the bureaus. They don’t even report your delinquent payments. They simply shut off your service, keep your deposit, and turn any remaining debt over to a collections agency. So pay your bill on time, and do something good with that $500 when you get it back in 12 months!

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Jay November 3, 2009 at 11:03 am

Wow! Thank you for clarifying that Carrie. The AT&T rep I spoke to flat-out lied to me by stating that it does indeed help build credit. Looks like I got taken for a ride.

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KIm July 21, 2011 at 2:49 pm

Yes they lied. We are going through a nightmare with verizone right now over credit. We closed our account over a year ago in good standing. When i went in to cancel my service because we moved to another country, I asked what my balance was and paid it in full. Then a year later while trying to buy a house in Hawaii, a negative report popped up on what was perfect credit. It knocked my score from 0ver 800 to 651. I had no idea what it was for. So I called them immediately. I had co signed for a friend to get a phone when I still had my account with them. Then after a month we went in and she provided the necesssary documents to transfer everything into her own name. I signed documents assigning responsibility to her and she signed documents accepting responsibility. Then she didn’t pay her bill. They apparently tried to contact her for a year and she did not call them back or pay the bill. They NEVER at anytime contacted us……why would they, we no longer existed on HER account. Then they turned it over to a collection agency and the colloection agency tagged our credit. We paid the balance and I am going to take it out of her sorry ass next time I see her. But the Cell phone company refused to remove the derogatory mark from our credit. They are admitting it is a mistake to be on our account and not hers, but they are refusing to remove it and apparently I can do nothing about it……getting back to your statement.,,.when we pulled our credit it only showed the last year of credit with Verizone where they tried to collect from her…even though we had been with them for 5 years. It also shows that we paid all our bills on time, everytime and then in July they tagged is for non payment of her bill when they were unable to collect from her……..THIS SHOULD BE ILLEGAL!!!!!

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Shannon November 10, 2009 at 7:03 pm

I just had an AT&T rep tell me that too. I wasn’t entirely sure I believed him, so I’m glad I googled it!

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kim August 1, 2010 at 2:10 pm

I have dug a hole for myself I put my cousin on on account with at and to stop her phone is 180.00 but to suspend it is just 63.00 month I really can’t afford either way any way out you know of
I make the note but it keeps me poor. Where I can’t save a dime.

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