When moving into your own place for the very first time one of the first steps you will need to take after signing the lease or the mortgage papers is to apply for utility service accounts. If you have never applied for a utility account before then you may think that you simply call your local utility providers, give them your personal information, and they will turn on your services without any questions.
Not so fast. There is much more that goes on behind the scenes and knowing what to expect ahead of time will help you to be better prepared. As with so many other things in life, your credit comes into play when applying for new utility accounts.
During your applications, utility providers will most likely check your credit report and a variant of your credit scores known as your Utility Score. Utility providers commonly rely upon credit and Utility Scores as a means of determining whether or not to require a deposit from a new customer.
If a deposit IS required a service provider may rely upon your Utility Score again to determine how high of a deposit is needed. There is no precise formula which is used across the board, but you can be sure that good credit equals little or no deposit and bad credit or no credit typically equals a higher deposit.
Once you have paid any required deposits and have received new utility accounts in your name it is time to take a look at how these new accounts will affect your credit scores. Many people assume that utility companies report to the credit bureaus on a monthly basis.
In reality, if you manage your new utility accounts well and pay them on time then they probably will never show up on any of your credit reports at all. There are a few utility providers that report accounts to the credit bureaus, but the vast majority of utility providers do not.
The reason that most utility companies do not subscribe to report monthly payments to the credit reporting agencies (another name for the credit bureaus) is because it costs a lot of money to do so. Unfortunately, this means that you will most likely not improve your credit scores by showing a history of on-time utility payments.
“If you manage your new utility accounts well and pay them on time, then they probably will never show up on any of your credit reports.” Tweet this post!
The catch-22 regarding utility accounts is that if you fail to make the payments and default with a service provider then negative information likely will show up on your credit reports. When a utility bill goes into default it is standard practice within the industry to seek the help of a collection agency.
Collection agencies exist to help other companies collect money on past due and defaulted accounts. And, while most utility providers do not report information on your credit files, collection agencies do have the ability to report bad debt to the credit bureaus.
If you want to avoid having negative utility collections show up on your credit reports then the basic rule you will want to follow is to always keep your payments on time. Plus, whenever you move out of the house or apartment where the utility accounts were opened, be sure to give all of your utility providers a call. You will want to close all utility accounts when you move out and make sure that any unpaid balance is paid in full.
It’s also a good idea to get a written receipt, which you keep for your records, stating that the accounts were closed in good standing. If a roommate is remaining in the home after you move out, you should ask the roommate to apply for new utility accounts in his or her name in order to protect your credit.