Shedding Light on Utility Bills
Having a bad credit history can affect you in ways you probably didn’t think possible. One of them is your ability to apply for and access utility services.
You know, things like electricity, water, and the internet.
Turning on the lights can be a bit more complicated if you’re struggling with bad credit, or have no credit history at all. Here’s why. There are two items that utility providers will likely check when you apply for their services. First is your credit history, and second is something called your Utility Score.
Your Utility Score is slightly different than your credit score. For example, if you’ve had utility accounts in the past and paid them on time and in full each month, chances are your excellent track record is never logged with the Credit Reporting Agencies (CRAs). However, late and delinquent payments more than likely will be. Only your bad behaviors, and utility accounts sent to collection agencies, are maintained by utility companies in a collective database separate from the CRAs. Your Utility Score is derived from that data. If you have no utility history to date, most providers will simply use your traditional credit score to determine whether to charge a deposit, and how much it should be.
The good, the bad and the ugly
The irony? If you don’t pay your utility bills that negative information becomes part of your payment history in the shared utility database. Some providers may also report charged-off accounts as collection items on your credit reports. But if you always pay on time, this positive information typically isn’t reported and it doesn’t help your credit history.
What are some likely outcomes if your credit history reflects late or non-payment of utilities? For one, if you’re trying to rent a place to live, the landlord can deny you based on your poor history. In most cases, however, what happens is that the utility company sets a large security deposit which you must pay upfront. According to the Federal Trade Commission (FTC), they may also ask for a “Letter of Guarantee” which means you must get a letter from someone who agrees to pay your bill if you don’t.
Another option? A requirement that you allow a utility to automatically debit your checking account using a debit card or checking account number. Keep in mind, most consumer advocates are vehemently opposed to allowing anyone but you access to your checking account(s).
You can also request a payment plan from your utility provider using budget billing. These plan types allow consumers to pay a similar amount each month, adjusted periodically depending on use. Most people will opt for plans like these if usage or costs spike during certain times of the year.
What it all means
Like most issues with your credit, paying utilities on time and in full is the best case scenario. If you run into trouble, you can most likely work with your providers to design a payment plan. But it is also extremely important that you check your credit reports to ensure there are no errors on them, especially as it pertains to your utility history.
Additionally, be certain to contact each utility company when you move out to ensure that all utilities in your name are turned off. That’s especially important if you leave behind a roommate. Pay all unpaid balances in full, get a written receipt that states all accounts were closed in good standing, and keep it in your records where you can access if ever necessary.
By doing so, you can help guarantee a light at the end of any bad credit tunnels.