Will a Cell Phone Plan Improve My Credit?

Many people choose to carry a cell phone as their secondary or primary phone line. Cell phones make daily life more convenient and can provide a safety net should the owner have an emergency away from home. Cell phones, and the contracts that come with them, can also affect a consumer's credit score. Depending on how the customer manages his account, he could see an increase or decrease in his credit score over time.

Cell Phone Account Basics

Traditional cell phone accounts require that the customer sign a one- or two-year contract with the company. During that time, the consumer will pay a monthly rate for cellular service. The rate varies by wireless provider and type of service. As with most contracts, the consumer will have to pay a fee to cancel service before the end of the agreement. Qualifications for starting a new service plan vary by provider. However, most providers run a credit report on all potential applicants. Customers with a poor or limited credit history may have to pay a deposit to start service.

Benefits to Credit Scores

If the wireless provider reports the consumer's history with the company to the credit bureaus, it could have a positive impact on the consumer's credit score. For example, payment history accounts for 35 percent of a consumer's credit score, according to MyFICO. If the consumer makes his monthly payment by the due date, his credit score may increase over time. The consumer may also benefit from the new credit type being added to the report. According to MyFICO, 10 percent of a consumer's credit score depends on the different types of credit he has.

Disadvantages to Credit Scores

Applying for cell phone service may have a slightly negative effect on a consumer's credit score. When the consumer applies for the account, the wireless provider will pull her credit, and the credit bureaus will list a new inquiry on her credit report. As 10 percent of a consumer's credit report comes from the number of applications a consumer makes, according to myFICO, this could result in a lower score. If the consumer does not make the monthly payments on the account, the wireless provider will likely turn the account over for collections and report a charge-off to the credit bureaus. Charge-offs and collection accounts have a negative effect on a credit score.

Tips

Not all wireless providers report payment history to the credit bureaus. If a customer has a history of timely payments, he can request that the provider report his information on his credit report. Any requests should be sent to the wireless provider in writing. If the provider does not list the information, the consumer can file a dispute with the credit bureaus to add the account by sending them a written request.