Using Your Cell Phone Bill to Build Credit
Cell phones have become so much a part of the American culture; one could say they are indispensable tools of a daily life. But did you know that you can also use your cell phone bill to build credit?
The credit industry’s changing attitudes towards cell phones is an alternative path to creditworthiness. However, there are obstacles to making cell phones an acceptable way to build credit. Here’s what you can do to build credit using your cell phone via text and email alerts.
The Irony and the Agony
When you purchase a cell or smart phone the cell phone company typically checks your credit report to see what the status of your credit is. If your credit score is acceptable you’re good-to-go. But the irony is having a perfect record of cell phone payments will not improve your credit score.
Conversely, if you don’t make timely payments on your cell phone bill your credit score will be damaged. The reason is this: cell phone providers are not extending you a line of credit, which is why cell phone payments made on time don’t end up on their radar. But if you don’t pay on time the cell phone company will report your arrearage to the credit bureaus.
But the major credit bureaus: Experian, Transunion, and Equifax are starting to reconsider cell phones as a viable way to build credit.
Consumer Advocacy Turns the Tide
The Consumer Financial Protection Bureau (CFPB) conducted a study, which revealed about 26 million U.S. citizens are lacking credit histories. Another 19 million have credit histories but they have aged out, or little credit information is available to formulate a credit score.
The CFPB is on a mission to aid lower-income and underserved communities to be able to get credit. They have concluded, based on their research, making cell phones an alternative source of credit building is dubious, complicated, and a challenge to be overcome.
But it only takes a few hardy pioneers to get the ball rolling in the right direction until such time a critical mass is reached, and a new business model adopted. One such pioneer is the alt-credit reporting agency, Pay Rent, Build Credit (PRBC). PRBC offers a service by which consumers can self-report cell phone payments. In 2010, 800 lenders had already signed on to accept as creditworthy cell phone payments.
Joining in the effort to make cell phone payments part of a credit report is FICO, the standard consumer credit rating scorer. FICO began its FICO Expansion Scoring System in 2007, but the jury is still out on whether the FICO Expansion Score is a dependable risk analysis paradigm.
But that hasn’t stopped Experian from trending toward making cell phone payments an alt-method of building a credit record. Experian bought RentBureau in 2010. RentBureau keeps records on tenants’ rental payment history, and now includes this information in its credit reports.
The credit industry is waking up to the fact they can profit enormously on consumers, who possess no credit history, but are making cell phone payments promptly and consistently.
With all the change in the air about legitimizing the alt-method of building creditworthiness, using a cell phone, we give you a few pointers below to get you on track towards building a credit history.
- Your credit card issuer’s mobile alerts, concerning fraudulent activity appearing on your credit report, are useful information. It helps you keep tabs on suspicious charges cropping up on your statements, so you can report them to the credit card issuer immediately.
- In tandem with reporting to the credit card company, you can also ask the credit reporting bureaus to place a fraud alert on your credit report, so creditors will see fraudulent activity when it occurs, keeping your credit record clean.
Automation and Monitoring
- To ensure you never make a late payment, set up an automated payment option. But don’t do it if you’re uncertain the funds are in your checking account to make good on payments.
- When you get your statement, double-check no unrecognizable purchases have shown up, possible evidence of fraud. Or have you just forgotten about a particular purchase? Busy lives can distract from remembering if we made that questionable purchase. Also, a credit card statement’s itemized purchases sometimes provide unclear descriptions, and you’re scratching your head trying to figure out what the purchase was. This is why it’s a good idea to keep your receipts until you’ve verified all your purchases are legit.
- Another handy tool for monitoring your credit spending is to sign up for mobile alerts. You can choose at what amount you want to be notified your spending limit has been reached. If you’ve set a low spending limit, you can opt to pay the entire balance. Paying off your balances always impresses lenders.
Tending to Your Credit Score
- One proactive step you can take to keep your credit score steady is to sign up for credit alerts. The emails or texts you get any time a “card not present”, an out-of-country charge, or a charge that exceeds your normal spending pattern appears, will enable you to contact the credit card issuer to dispute the item.
- Finally, frequently check on your credit score to keep your spending habits under control. You will see some minor risings and fallings, which shouldn’t alarm you. But watch out for any negative trends in your spending.