How Bad Credit Can Affect Your Utility Bills

A blue house with an image of a dropping faucet on it

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

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 a risk — meaning your credit score could lead you to 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 a group of basic resources that most people take for granted: utilities. That’s right, even the water coming out of your tap could cost more with a bad credit score. Meanwhile, your on-time utility bills are unlikely to improve your credit score, even though late payments can further hurt it. 

What are utilities, anyway?

Your utilities consist of the basic resources that service 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.

Some utilities may be included in your rent. Some may not. If you don’t rent your home and are part of a home owner association, some of your utilities may be billed through your monthly fees — or they too, may all be your own responsibility. Regardless of your living situation, when it comes to the utilities you are responsibility for paying yourself, you might be required to undergo a credit check.

Utility contracts are a form of credit

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 personal loan is that an open account does not involve any interest, and the utility company includes the cost of lending in the prices it charges.

Still, there is a risk to the utility provider that a service-user might not be able to pay off their account balance in full each month. To account for that risk, service providers will use a person’s credit score and history to determine how much to charge them.

How poor credit scores impact utility bills

While utility companies aren’t going to charge you huge interest rates for having a low credit score, you may be looking at additional costs when you want to set up your water, electricity, or gas account, according to Jim Chilsen, spokesman for Citizens Utility Board:

“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.”

Bad credit may create additional hassle

If you’re applying for utilities with a low FICO score, the utility company might ask for a guarantee.

One form of this is a “letter of guarantee” from someone who agrees to take over your payments if you do not make them. This is similar to having someone cosign a loan if you cannot qualify for it on your own. Alternatively, the utility company may require a deposit. 

Chilsen also warns you may have to pay a deposit even if you currently have a good credit score. If a previous utility account “went into collections,” the new utility company may ask for a deposit even if there aren’t other credit scoring issues. 

How do utility deposits work?

Assuming you keep up with your utility payments, Chilsen explains you should be able to get your deposit back with interest after a certain number of monthly payments. Of course, if your payments are past due, you could lose that deposit and risk having your utilities shut off. 

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.”

How do your utility bills affect your credit?

Your credit score doesn’t just affect your utility bill payments. The reverse is also true: How you handle your utilities can impact your credit score.

Overall, paying your bills before the due date is really important. In fact, your payment history makes up 35% of your credit score. It is the single largest factor in determining your creditworthiness. (The amount you’ve borrowed comes in second at 30%.)

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,” Chilsen says.

Unlike many other loan payments, timely utility payments have not traditionally been reported to the major credit bureaus to improve your score, though Experian has introduced a program called Experian Boost to allow this.

Regardless of whether you can find a way for on-time payments to appear on your credit report, too many late payments will bring in the debt collectors and that is always going to drag down your credit. As if dealing with late fees and a collection agency wasn’t bad enough, the credit reporting agencies will keep that collection on your credit file for many years to come. Unfortunately, when it comes to your utility bills, it can be easier to cause harm than it is to build credit.

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

This article was updated March 6, 2020. It was previously updated May 15, 2018.

Article contributors
Jim Chilsen

Jim Chilsen is the spokesperson for the Citizens Utility Board, a nonprofit, nonpartisan organization that has been representing the interests of residential utility customers across Illinois since 1984. Follow the Citizens Utility Board @cubillinois for more information.

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.