If you're looking to raise your credit score, you may have considered cell phone financing. This article will go over how financing a cell phone works, and if financing one can help you build credit.
How financing a cell phone works
You can finance a cell phone and pay it off over time. There are a few different ways to finance a cell phone. You can finance through the phone's wireless carrier, the manufacturer, or through a third party.
Through a wireless carrier
Your wireless carrier will likely offer many different financing options when you purchase your phone through them. You can sign up for an installment plan and pay your phone off monthly without interest (for a limited time). You might also be able to lease a phone and have the option to upgrade down the road. Financing or leasing may require a down payment.
Financing or leasing through a wireless carrier will not help you build credit since they don't usually report activity to the three major credit reporting bureaus (Experian®, Equifax® and TransUnion®).
Through the phone manufacturer
Major phone manufacturers, like Apple or Samsung, offer financing options. Financing through a phone manufacturer often works similarly to a credit card, meaning they'll open a line of credit for you that is reported to the credit bureaus. As long as you make your payments on time, you'll build credit.
Finance through a third party credit card
You can also finance through a third party, such as an electronics store. These retailers offer credit cards that typically have interest-free periods.
3 ways financing a cell phone can affect your credit
Financing a cell phone can affect your credit in three different ways:
- If you're financing through a phone manufacturer or third party, they may place a hard inquiry, also known as a hard credit check, on your credit report. This could result in a credit score drop.
- If your creditor reports the account to the credit bureaus (like when you purchase through a major manufacturer), you can build a positive credit history by making your payments on time. Alternatively, you could hurt your score by missing payments.
- If you fall behind on payments, your account could get closed or sent to collections. The collection account could end up hurting your credit, no matter how you financed your phone.
Should I finance my cell phone to build credit?
Financing a cell phone may help you build credit if your payment activity is reported to one of the credit bureaus. If it isn't being reported, you won't build any credit.
Will paying my phone bill build credit?
The short answer: No, paying your phone bill will not help you build up credit. Phone bills for service and usage are not usually reported to major credit bureaus, so you won't build credit when paying these month to month.
However, through certain credit monitoring services, you can manually add up to 24 months of payment history to your report. If you have an immaculate payment history with your phone bill and can add it to your credit report, you may be able to improve your score.
How to use your phone to build credit
While financing through your wireless carrier won't help you build credit, there are other ways to go about it. You could also purchase the phone with a credit card on your own repayment schedule. Making timely payments will help raise your score.