Can a Bad Credit Score Affect Utility Bills?
When we consider the factors that affect our credit, we often think about traditional forms of credit such as credit cards, loans (e.g., car, personal, or student loans) and mortgages. But did you know your credit can also impact your utility bills? In this article, we’ll take a look at the effect poor credit can have on your utilities, what to do if you’re having trouble paying your bills, and what steps you can take to lower your bills and improve your credit score.
What Qualifies as a Utility?
Utilities are basic amenities provided to the public by private, for-profit companies. There are several types of utilities, but the ones typically considered essential to a household are water, gas, sewage, garbage, and electricity. If you are renting a home, landlords will often include your water, sewer, and garbage costs in your rental agreement, while you’ll be responsible for electricity, gas, and communication/entertainment services like cell phone, internet, and cable. If you’re a homeowner, you’ll be responsible for all of it.
Do Utility Companies Run Credit Checks?
Most utility companies check your credit when you apply. Why? Because such companies charge you at the end of each month for services you’ve already received. That means credit has been extended to you up until the point that you pay your bill. Fortunately, utility credit checks are done as a soft credit check (or “soft inquiry”) rather than a hard credit check, so regardless of your current financial situation your credit score will not be affected.
Can a Poor Credit Score Affect My Utility Bills?
Poor credit can indeed have a negative impact on your utilities. If a utility provider runs your Social Security number and finds that you have a history of late or missed payments, you may be looking at additional costs or actions to get your service up and running. These can include:
A deposit fee - If you have poor credit or a thin credit file, a utility company may ask you to provide a deposit that can range from less than $100 to several hundred dollars, depending on your credit history and where you live. The good news is that such deposits are refundable (with interest) once you’ve made a certain number of payments and proven that you can pay your bill on time.
A letter of guarantee - Some utility companies may ask applicants with poor credit to obtain a letter of guarantee. This letter is typically provided by someone who has agreed to take over your payments if you can’t pay them. It’s similar to having a friend or family member co-sign on a loan in instances where your credit won’t allow you to take one out on your own.
Fees due to a spouse’s payment history -You can also get saddled with additional fees if your utility service was in a current or former spouse’s name, and that spouse regularly had missing or late payments. Fortunately, the Equal Credit Opportunity Act (ECOA) gives you the chance to prove that you are not responsible for someone else’s actions. To avoid fees, you must prove that you didn’t live with your spouse at the time the expenses were incurred, never saw the bills, or that you paid them as soon as you discovered they were past due. If you’re not able to prove that you were unaware of these actions, you may be responsible for paying your spouse’s overdue debts before you can get your utility services activated.
Can Utility Bill Payments Impact My Credit Score?
Although applying for a utility won’t affect your credit score, missed payments will. If you go too long without paying a utility bill, your account will go into collections and eventually turn up as delinquent on your credit report. Though you won’t be charged interest as you would with a credit card or loan, you may be charged a late fee, and defaulting on a utility bill still dings your credit and impacts your credit score. Just like with credit cards and loans, you should always strive to pay your utility bills in full and on-time.
What Can I Do If I’ve Been Denied a Utility Service?
Though public utilities have a “duty to serve,” that duty is not absolute. A utility can deny you service for certain reasons, e.g. if you default on your bill payments. However, any utility that denies you service is required to notify you of this decision within a certain time period (depending on the laws of your state). Once you’ve been notified, you have a right to request an explanation — in writing — as to why your service is being suspended. You can also contact your state and/or local consumer protection department to find out what additional rights you may have under state law.
What Can I Do if I Can’t Pay My Utility Bills?
During the height of the pandemic, many states and local governments placed a moratorium on utility payments due to the fact that a large number of Americans were struggling to pay their bills. As of 2022, some states have extended these moratoriums while others have ended them. It's important to note that regardless of your state or region’s utility moratoriums, they’re not meant to eliminate bill payments — they just defer them.
So what can you do if you’re still unable to pay your utilities? Start by contacting your utility company. Depending on the utility and your state of residence, you may qualify for some form of relief. Many companies have programs that provide assistance to customers in need. Another option is to apply to Low Income Home Energy Assistance Program (LIHEAP), a federal program that helps low-income families pay their electric, gas, heating and propane bills. LIHEAP eligibility requirements vary by location, so make sure to check out the resources available in your state, city or region.
How Can I Lower My Utility Bills?
The best way to lower your utility bills is to lower your utility usage. Turning off lights in rooms you’re not currently using, lowering the thermostat, taking shorter showers and unplugging appliances when not in use are all great, low-effort ways to save. Certain qualifying families can also get help from the Department of Energy’s Weatherization Assistance Program (WAP), which increases the energy efficiency of homes through weatherization improvements and upgrades.
Can I Use My Utility Bills to Improve My Credit?
We already know that severely delinquent utility accounts are sent to a collection agency and will eventually show up on your credit report. Up until fairly recently, this was the only kind of impact your utilities could have on your credit.
Now however, consumers can receive credit for their on-time utility bill payments. There are programs like Experian Boost and eCredable which use your bank records to find on-time qualifying payments for monthly utility bills. Another option is to ask your utility companies to report your on-time payments to the three nationwide credit bureaus (Equifax™, Experian® and TransUnion®) so that those payments can appear on your credit report. Over time, your history of utility payments can help increase your credit score.
The Bottom Line
Poor credit can jeopardize your ability to obtain the essential utilities you need. But remember, achieving good credit depends largely on your ability to make on-time payments. If you’ve been denied certain utilities due to poor payment history, you have options. Make your best effort to pay your bills on time, even if that means paying only the minimum balance due. If your debt is keeping you from getting your utilities up and running, reach out to the utility companies and see what options they have for customers experiencing financial hardship. And don’t forget to research federal, state and local aid programs as well. If you need help, just ask. No matter your financial circumstances, no one should be denied the basic amenities of modern life.
This content provided is for educational and informational purposes only and does not constitute financial or legal advice. RISE is not acting as a credit counseling or repair service, debt consolidation service, or credit services organization in providing this content. RISE makes no representation about the reliability or suitability of the information provided – any action you take based on this content is at your own risk.