How monthly subscription can help build credit
Are you a regular TV-watcher and enjoy streaming services? Do you love using apps to listen to music or books? Subscriptions like these often come with a reoccurring monthly fee, and while expenses can quickly add up, making regular, on-time payments for these services can actually help to lift your credit score.
In this article, you'll learn about:
- What types of subscriptions help build credit?
- Why you'd want to use monthly subscriptions to build your credit score
- How automatic payments can help build credit
- How paying your utilities can help build credit
- Tracking your credit score using Chase Credit Journey®
What types of subscriptions help build credit
Subscriptions that may help build your credit include streaming services (think Netflix® and Hulu®) and other recurring payments to applications on your phone (think Headspace® or Spotify®).
While these subscriptions offer entertainment and other types of value, they are different from recurring monthly expenses, such as utilities for electric, gas and internet. Subscriptions are considered non-essential expenses, while other bills for your day-to-day living are essential. If you're able to pay off all of these types of expenses in full without it negatively impacting the amount of money you have left to pay off other balances, that's great! You're improving your payment history (more on this later).
Credit utilization ratio
If you're struggling to make ends meet, you can set a clear path to superior credit utilization by trimming these non-essential subscription services. Credit utilization is the ratio of your balances to your credit limit—an ideal ratio is about 30% or less. It's an essential part of calculating your credit score. It accounts for about 20% of your VantageScore® and 30% of your FICO® score.
If you're looking to lower your credit utilization by paying less towards your monthly subscriptions, you can unsubscribe from services you don't use as often (or can live without). Doing so lowers your monthly fees, which can help you save money and reduce the amount you owe towards your credit card. Lowering your credit utilization ratio typically improves your credit score, which enhances your creditworthiness and may open the door to more attractive rates and terms from lenders.
Why use monthly subscriptions to build your credit score
If you're careful with your spending habits and can make payments on time, monthly subscriptions can be a helpful way to build your credit score as they can be another way to show that you are responsible with your money and able to pay off your bills on time.
To understand how this works, we need to talk about payment history, which is a major factor that gets calculated into your credit score.
Payment history accounts for about 40% of your VantageScore and 35% of your FICO score. It is exactly what its name implies—it is the frequency of paying your bills on time and in full.
Consistently making full, on-time payments will demonstrate to both lenders and credit card issuers that you are responsible in managing your money, helping to elevate your credit score and putting you in a better position when it comes to borrowing money at attractive rates, etc. This helps to build your credit score.
How automatic payments help build credit
While using a credit card specifically for your subscriptions can help improve your payment history, you can also use automatic enrollment/payments if you don't want to worry about making this payment on time each month.
Automatic payments help facilitate payments—you don't have to sweat the details, you don't have to remember payment dates and you don't have to ratchet up the anxiety trying to get everything coordinated on time. Automatic payments can be a convenient option when you're already swamped and juggling a thousand other details.
However, keep in mind that there could be overdraft fees on your checking account if you don't have the necessary funds to make these payments. Whether you're struggling to pay off your credit card bills or deducting money directly from your checking account, remember that you'll need to replenish your funds to be able to pay for all your monthly expenses, not just your subscriptions. Monitoring your credit is a helpful way to see if you're overspending on credit card bills.
How paying for your utilities help build credit
Similar to subscriptions, utilities are reoccurring bills that you have to pay each month for day-to-day living. Utilities may include electricity, water, sewer and gas, internet services and phone. These are important and necessary items; paying off your utilities regularly and on time can help build your payment history, thus positively impacting your credit score.
Tracking your credit score using Chase Credit Journey
Paying for your subscriptions and utilities is a great step towards lifting your credit score and improving your overall financial fitness. But how do you know that the hard work you're putting now is paying off?
When you enroll in Chase Credit Journey, a free online tool, you can see how your score tracks over time. You can also get a personalized plan to improve your credit score over the course of 3, 6, 9 or 12 months. If you're looking to continue to increase your score, improve your financial savvy and learn how to achieve your credit score goals, enroll in Credit Journey® today.