How Bad Credit Can Affect Your Utilities


A utility bill is a form of credit, and that means that utility providers always take your credit score into account.

Updated: May 15, 2018

It’s a sad fact of life that people with bad credit scores can usually expect to be turned down for loans when they apply at traditional lenders. And even if their loans are approved, they’ll likely have to pay more in interest than someone with good credit.

But bad credit can affect more than just your ability to get a loan. Landlords, credit card companies, and even some employers often see a spotty credit history as too great a risk—meaning your credit could make you miss out on a great apartment, a cashback card, or even your dream job.

To add insult to injury, having bad credit can also affect something that most people take for granted: the cost of utilities. That’s right, even the water coming out of your tap could cost more with a bad credit score.

What are utilities, anyway?

What’s considered a “utility?” It’s all the basic services in your home:

  • Water
  • Gas
  • Electricity
  • Internet
  • Phone
  • Cable

Basically, your utilities aren’t optional; they make up all the things you need to live comfortably in the 21st century.

So if you have bad credit, and you’re moving into a new home or apartment, you might find that hooking up your utilities is a little more expensive than you’d like, and there’s not much you can do to fight these costs.

After all, it’s not like you can decide to forgo any of these services, and most towns have just one electricity, water, and gas provider.

Utility contracts are a form of credit.

“Like many creditors, utility companies prefer customers with good credit rather than bad credit given they will be using the business’s product in advance of paying for it,” says Natasha Rachel Smith, head of global communications at TopCashBack (@topcashbackusa).

“Having bad credit will affect how reliable utility companies perceive you to be, as a shaky payment history could make you look like a liability.”

Technically, when utility companies set up an account for you, they’re issuing you credit. These accounts are called “open accounts,” as in, every month you have an open balance that needs to be paid in full.

The difference between a utility account and a traditional loan is that an open account does not involve any interest, and the cost of lending is included in the prices charged.

Still, there is a risk to the utility providers that a service-user might not be able to pay off their account balance in full every month. To account for that risk, utility companies take into account a person’s credit score and history when determining how much to charge them.

A poor credit score means bigger utility bills.

While most lenders will turn you down flat when you apply for a loan with bad credit, some lenders will still be happy to lend to you, no matter what your credit score.

But these loans, if you can get them, are going to have much higher interest rates than what you’d get from a traditional lender—sometimes their fees can be upwards of a 600 percent APR!

While utility companies aren’t going to charge you THAT much in interest, you’re still likely looking at an additional cost when you want to set up up your water, electricity, or gas account.

According to Jim Chilsen, spokesman for Citizens Utility Board (@cubillinois), “Keeping a good relationship with your utility avoids a lot of headaches—but a bad credit score is like a bad first date. You don’t want to start off on the wrong foot. That’s because utility companies are allowed to assess you a deposit if you have a low credit score. Not all of them do it. Also, low-income customers are exempt from this possibility.”

“Remember, if you are assessed a deposit based on a low credit score, you have a right to get a copy of the credit info that the utility used to make its decision, the same as you would with any other entity that runs your credit history,” says Chilsen.

Bad credit also means additional hassle.

If you’re applying for utilities with bad credit, Smith says that the utility company might ask for a guarantee.

“Many utility companies require a “letter of guarantee” to cover their end in case you become overdue. A letter of guarantee can be a deposit amount or formal confirmation from someone that they are willing to take legal responsibility to pay your bill in the event you don’t,” she says.

Chilsen also warns that “you might have to pay a deposit even if your credit score is good currently. For example, if in the past you’ve gotten your power or gas shut off or if your utility account “went into collections,” the utility can ask for a deposit, even if your current credit score is decent and you do not currently owe it money.”

Lastly, if you have any unpaid accounts with a utility company, they could disconnect your current service until you pay what you owe.

How do utility deposits work?

According to Smith, “many new customers of utility companies have to provide a deposit amount within their first bill, which is usually the set or approximate cost of one month’s service. But if you have bad credit, this deposit amount could be even higher—perhaps in the hundreds.

“After you’ve shown you’re a reliable payer, usually after a year, the deposit is given back to you.”

And how big can these deposits get? Chilsen offers an exact amount:

“It’s one-sixth of your annual bill, or if you don’t have a usage history at the property, one-sixth of the property’s previous annual bill. For commercial customers, it’s one-third.”

He also says that you can get the deposit back after one year, but it’s a little bit more complicated than that.

“How do you get back that deposit? Over the next year, you have to pay at least nine bills on time. Then you can get the deposit back, with interest.”

“The moral of the story is: Do whatever you can to keep current on your electric and gas bills. On the flip side, if you do not use credit much, a utility account can be one way to start establishing a credit history,” says Chilsen.

And he’s right. Your credit score doesn’t just affect your utilities. How you handle your utilities also can affect your credit score.

How do your utility bills affect your credit?

Paying your bills on time is important. Really important. In fact, your payment history makes up 35 percent of your credit score. It is the single largest factor in determining your creditworthiness, (The amount you’ve borrowed comes in second at 30 percent.)

And when it comes to your utilities, some of your payments can be included in your score.

“We counsel utility customers to do everything they can to keep current or to show the company that they want to keep current with electric and gas bills,” says Chilsen.

“Gas and electric utilities will report your account to the major credit bureaus—so that means habitually late utility payments can hurt your credit score. The data that utilities report to the bureaus is how many days past due you are or were, and what the dollar amount owed was at that time.”

Chilsen warns that “getting behind on your bills can set you on a spiral that leads to disconnection.”

“And once you get disconnected it’s difficult and expensive to get turned back on. Utility companies can make you pay the entire debt, plus a deposit of at least one-sixth of your annual bill, plus a reconnection fee.”

An unpaid utility bill sent to collections can also hurt.

This is another way that utilities can negatively affect your credit. According to Smith, “If you fail to make utility payments on time, your provider can pass the bill to a debt collector to chase you for the payment. That can lead to a negative impact on your credit standing.”

Having outstanding debt collections on your credit report is never a good thing. Fail to pay your utility bills and these “derogatory marks” on your report could really drag your score down.

In the end, your utility bills are like any other bill; failing to pay on time could have a serious effect on your credit score and general financial wellness for years to come. While no overdue bill is ever worth taking out a predatory payday loan, it’s always good practice to have an emergency fund or some safer borrowing options if you find yourself short on cash.

Utilities exist to make our lives easier. Don’t let utility bills make your life more difficult.

To learn more about living with poor credit score, check out these related pages and article from OppLoans:

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Natasha Rachel Smith, Personal Finance Expert at (@topcashbackusa), is based in Montclair, NJ. Natasha’s background is in retail, banking, personal finance and consumer empowerment; ranging from sales to journalism, marketing, public relations and spokesperson work during a 17-year career period. She’s originally from London, UK, but moved to Montclair, New Jersey, USA, several years ago to launch and run the American arm of the British-owned TopCashback brand; a global consumer empowerment and money-saving portal company.
Jim Chilsen (@cubillinois) is the spokesman for the Citizens Utility Board, a nonprofit, nonpartisan organization that has been representing the interests of residential utility customers across Illinois since 1984.

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.