While it is common knowledge that a personal loan or credit card can affect your credit score, many people don’t realise that their telecommunications services, such as mobile phone plans and internet provider contracts, can also have an impact. Although telecom and utility service providers aren’t licensed credit providers, they do affect your credit score if you have defaulted on your payment. These providers report defaulters to a credit rating agency.
In an investigative report by the Telecommunications Industry Ombudsman (TIO), it was found that telecom sales tactics were resulting in thousands of phone users running up bills beyond their affordability. The report also found that in some instances, especially when the salespeople needed to achieve their sales targets, they had a tendency to set up customers with an expensive product, beyond their ability to cover the extra costs. This often results in an inevitable default on phone bill payments. Apart from being the result of sales tactics, defaults on payments could also happen due to other personal reasons or simply as an oversight.
What will negatively affect your credit score, and for how long?
Defaults
When you have made a late payment for a bill that is over $150 and it is due for more than 60 days, it is considered a default. Also, the service providers would have taken some effort to contact you to recover the outstanding debt.
Defaulting on your phone payment will not just prevent you from applying for other phone plans in the near future, but it will also affect your ability to get approval for a home loan or credit card, by negatively affecting your credit score. However, before the credit provider lists your arrears with the credit reporting agency, they should have taken steps to collect your payment along with a written notice specifying their intent to list it.
Bankruptcies and court judgements
A default will stay on your record for a period of five years. During this period, if you repay the debt, then this will be put on record, but if you don’t then the default will remain. In fact, if there is a court judgement or bankruptcy it will make matters worse. Further, a bankruptcy will be recorded for five years from the date you became bankrupt or two years from the date your bankruptcy ends, whichever is later.
Late payments
If you have simply forgotten to pay a bill, it will also show up on your credit rating, even if you manage to pay the bill before it becomes a default.
What will positively affect your credit score?
It's not all doom and gloom with your phone plans and credit score. You can positively affect your credit score by doing the following:
Good payment history
If you exhibit a punctual history of phone payments, then it will positively impact your credit score.
Type of credit facility
The more information you give regarding your mobile phone bills or other utility bills, the better for any lender you approach to understand your financial situation clearly.
Pre-paid mobile and broadband plans
An option to avoid getting into the loop of late or non-payment of phone bills is to stick to pre-paid mobile and broadband plans. Nowadays, there are several choices and competitive prepaid plans on the market, where you can conveniently pay upfront for what you require for the month.
