Do Utility Bills Affect Credit Scores?

As you sit down to diligently pay your monthly gas and hydro bills, have you ever wondered if your utility bills appear on your credit report? Utility bills, like hydro and gas, aren’t included in your credit report because utility companies don’t generally report payments to credit bureaus. However, there’s a big caveat. Your utility bills can negatively affect your credit score if you stop making payments and the utility company sends your unpaid bills to a collection agency. 

How Can a Utility Bill Hurt Credit Scores?

Generally speaking, Canadian utility companies do not report a client’s payment history to the country’s two major credit bureaus (Equifax and TransUnion). Of course, if your payment history is not reported to a credit bureau, then there’s no way utility payments can influence credit scores. However, all bets are off if you stop making timely payments. 

If your past due bills start to pile up and it looks like the utility company won’t be able to get the money you owe them, they can decide to send your debt to a collection agency. This is also known as charging off debt. A collection agency is a company that specializes in recouping unpaid debts. 

Once a collection agency assumes the debt, they will usually send a record of your account and your history of non payments to Canada’s credit reporting agencies. That record will then become part of your official credit report and at that point it will start to damage your credit score. Credit reports show any of your accounts that have been sent to collections and whether your amount owing has been paid or unpaid. The longer it takes you to make payments, the longer and more severely your credit rating will be negatively affected. 

What Happens If My Utility Bill is Sent to Collections?

Once a collection agency assumes the debt, they will usually immediately report the debt and your history of non payment to a credit bureau. It’s in their interest to report your debt because threatening your credit score is one form of leverage they can use to encourage you to make good on your debt. 

Before your account has been sent to a collection agency, the utility company should send you a notice saying that your debt is about to be charged off to a collection agency. At that point, if you have the ability to do so, you can reach out to the utility company to see if you can come up with a payment plan so that you can prevent your debt from being transferred to the collection agency.

Once the debt goes to the collection agency, they will then begin to contact you to get payment. This can be a very stressful situation and even though there are strict rules in Canada that collection companies must follow when collecting debt, many have a general reputation as being very aggressive. (If you think a credit collection agency is being too aggressive and infringing upon your rights you can contact the Financial Consumer Agency of Canada). 

On the bright side, many collections agencies may offer to charge you less than the amount you actually owe in return for quick payment. It’s always best to make a payment as soon as you can to stop your credit score from falling further. It’s important to note that there are set times that things like bankruptcies and collection agency debt will stay on your credit report. In general, a collections debt will stay on credit reports for six years from the date of your last payment. However, if you don't pay off the amount, it could stay on your credit report indefinitely, which is why it’s vital to make all efforts to pay off your outstanding debt. 

Can Utility Bills Help Me Improve My Credit? 

While paying your utility bills doesn’t directly affect your credit score, using a credit card to pay your bills can help you improve your credit score. This is, of course, only if you pay your credit card balance on time. Credit card providers report your payment history to credit bureaus, and payment history is the largest factor that impacts your credit score. So as long as you make your credit card payments on time and don’t carry a massive balance, it can be a good idea to use a card to pay your utility bill. Be aware, however, that many utility companies in Canada charge a fee (usually about 1.75%) if you pay with a credit card, so you should balance the cost of the fee against the benefits of building your credit rating. 

Some Canadian utility companies track their customers’ utility payment history, which means that not paying your utility bill could make it harder to get set up with a new company. Furthermore, some utility companies (such as those in Ontario) do often charge new customers a security deposit to set up an account. That fee is waived, however, if you can provide a letter proving one year of good payment history with another electricity or gas utility in Canada, which is all the more reason to stay on the good side of your utility provider.

What else can I do to improve my credit? 

Though paying utility bills may not directly improve your credit score, there are plenty of other ways to consistently improve your credit rating. Here’s just a few:

• Get to know more about what actually makes up your credit score, so you can focus on improving the factors that are the most important (like payment history and credit utilization).

• Stay on top of your credit score by actively monitoring your score and credit report. That way you can fix any errors and know immediately when problems arise. You can get your free credit score in Canada by signing up for Borrowell

• Always pay bills on time; late payments can lead to a lower credit score.

• Keep your credit utilization ratio below 30%.

• Don’t cancel your old credit cards; credit history is a big part of your credit score.