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When you're moving to a new address, one of the items on your to-do list will involve setting up utility services such as electricity or water. As part of this process, a utility company may check your credit report before setting up an account in your name.
When you're requesting that utilities be hooked up at a new address, or you're switching to a new provider, you're essentially applying for credit. A utility typically charges you at the end of each month based on how much electricity or other services you've used over a one-month period. Because utility companies are providing services before you pay, they're extending credit to you.
Utility Companies May Run Your Credit
Checking your credit gives a utility company a snapshot of your bill payment history, including whether you've made timely payments.
The utility company may rely on information in your credit report when deciding whether to provide services to you. And if it does agree to supply services, it might ask for a deposit if your credit report shows a poor history of paying bills. Or, instead of a deposit, they might request a letter from somebody who promises to pay your utility bill if you don't. This is known as a letter of guarantee.
A utility company must obtain your permission to check your credit report. You won't need to do much to grant this permission: When you fill out an application for utility service, the application itself serves as permission for a utility company to review your credit report as part of its approval process.
If you choose not to authorize a check of your credit report, alternatives are available. For instance, you may be able to obtain a credit reference letter from another utility you've done business with. This letter outlines your service and payment history with them. Another option is to request a prepaid utility plan that requires no credit check or deposit.
If a utility company rejects your application, it must send you a notice within 30 days and inform you of the reasons you were denied service or tell you that you're entitled to know the reasons. You're then given 60 days to ask what these reasons are. Your request must be in writing.
Do Utility Company Inquiries Affect Your Credit Score?
When a utility company checks your credit report, it runs what's known as a soft credit check, or soft inquiry. A soft inquiry doesn't affect your credit scores.
On the other hand, a hard inquiry typically happens when you initiate a credit transaction, such as applying for a credit card or loan. A single hard inquiry usually leads to a few points' drop in your FICO® Score☉ and will only affect your score for a short period of time.
Keep in mind that most utility companies don't report your bill payment activity to the three major credit reporting agencies (Experian, TransUnion and Equifax). But if you don't pay a utility bill and the utility provider turns the debt over to a collection agency, the debt may appear on your credit reports.
How to Boost Your Credit Score With Utility Bill Payments
Although many utility companies don't report your bill payment activity to the three major credit reporting agencies, you still might be able to boost your credit if you've got a solid history of paying utility bills.
Experian Boost®ø helps consumers instantly improve their FICO® Score by giving them credit for on-time payments for utility services, telecom services and certain streaming services. This free feature can benefit people with little to no credit history as well as people seeking to bump up their credit scores.
To take advantage of Experian Boost, you'll give Experian permission to access your account payment information, verify monthly utility payments and confirm that you want them to show up on your credit report. If the new information can raise your credit score, the boost will happen right away. Experian Boost doesn't include late utility payments in its calculations.