Your credit score is in jeopardy if you don’t pay all of your bills

A recent study by credit bureau Experian shows that more than forty percent of Americans have to choose between paying a utility bill and paying a credit card bill each month. This is a problem, as utilities, such as power, gas and water service, are absolute necessities that no homeowner can do without. And yet the problem persists, as more and more Americans find themselves with seemingly unresolvable debt problems.

Most people know that failing to pay a light bill on time will not result in an immediate cancellation of service. Utility companies know that people sometimes forget to pay bills or have to pay them late, so the service doesn’t get cut off right away. If it does, you can pay the bill and a reconnect fee and usually get your service back fairly promptly. What many people do not realize, however, is that there is an additional cost to not paying your utility bill on time. It can hurt your credit score.

Most consumers are aware that the three major credit bureaus track financial transactions between consumers and creditors and use that information to create a credit score for the consumer. This is a three digit number that represents, in a nutshell, whether that consumer is worth of receiving additional loans or credit. If you pay your bills on time, your score goes up. If you pay late or not at all, they go down. Consumers know that failing to pay a credit card bill on time will result in a drop in the credit score, a late fee that might be as much as $39, and a hike in the card’s interest rate. They assume, incorrectly, that no such harm can come to them if they fail to pay the light bill.

That isn’t the case, however. Utility companies do report to the credit bureaus, and failing to pay your light bill on time will show up as a delinquent account on your credit report, just the same as if you failed to pay your charge card company. Granted, the light company doesn’t have the ability to raise your interest rate, since electricity isn’t paid over time like charge card balances, but the failure to pay will show up as a “black mark” on your report. That can be crippling if you need to borrow money anytime soon, as you might to buy a new car.

It’s not just failure to pay that shows up on your report. Many utility companies are now reporting monthly activity to the bureaus. This is good for those who are just starting out financially, as paying your water, gas or electrical bill on time each month can now help you establish a financial history. That’s a double edged sword, though, and what can help you can also hurt you. Make sure that you pay that utility bill on time, each and every month.

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