You 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.