Clear the amount owing first, and then dispute the cell phone charges. That way it doesn’t lower your score, or cause you to get charged higher interest rates
ORIGINALLY PUBLISHED on November 25th in Canadian Mortgage
Trends
Despite what you may have heard, your cell phone payment history does
affect your credit score.
Cell phone accounts work differently than a credit card or a line of
credit. A cell phone is an open or “O” account, which means the balance has to
be paid in full at the end of each month.
There is no such thing as a minimum payment with an “O” account like
there is with credit cards and lines of credit. You can’t just pay a portion of
your bill. The amount that you see on your statement has to be paid in full
otherwise your credit score will suffer.
Unfortunately, many Canadians don’t view paying their cell phone bill in
full or on time as being as important as other payments.
Lenders disagree.
The
bank underwriters (the people who review your application) are thinking, “If
you can’t make or keep track of a cell phone payment, what are the chances that
you are going to be responsible with your mortgage payment?”
Costly Missed Payments
Let’s take a look at one borrower, John, who was declined for best-rate
mortgage financing on the purchase of a new house because he had three late
payments on his cell phone bill during the last two years. His argument wasn’t
unique.
“I called (the phone company) before the payment was due and asked if
I could pay half of the bill this month and the remainder of the outstanding
balance the following month,” he said. “The customer service rep told me
that it was okay to take a couple of months to get caught up.”
Susan and Frank found themselves in a similar situation. They were
approved for mortgage financing but were then declined at the last minute due
to a recent late payment showing up on their report in the same week they were
supposed to be moving.
Arranging a mortgage and preparing for a move is stressful enough
without having a financing issue in the eleventh hour. In the end they were
able to find a resolution, but it resulted in a delayed closing. They had to
get approved by a different lender at a higher rate. In addition to all the
stress and time, this small mistake ended up costing them $3,459.28.
Despite what they tell you, late payments will continue to be recorded
until your account is caught up. Underwriters will look at an applicant with an
outstanding balance as someone who is not in control of their finances. It will
drop your score and hurt your chances of being approved for best rates and
terms.
A Matter of Principle
It’s common for consumers to not make a payment because they were
unfairly charged or they found a mistake on their bill. On principle, I
understand that you might not want to make the payment, however, even if you
are disputing the charge, it will not stop the negative item from showing up on
your credit report.
And keep in mind that one late payment can be enough to negatively
impact your best rates and terms for future financing. Your cell phone company
will start the collection process if an overdue balance is not paid within 60
to 90 days.
As you can guess, a collection appearing on your report does not help
your credit score. Many of my clients echo my caution, and in hindsight wished
they had simply paid the bill in the first place. If you find yourself in this
situation, my suggestion is to clear the amount owing first, and then dispute
the charges. That way it doesn’t lower your score, or cause you to get charged
higher rates just because of one account.
Warning…Warning
If you have paid out or closed your cell
phone account, make sure you get something in writing to confirm that there is
no outstanding balance owing.
The same goes for an outstanding amount or
settled collection. Don’t take anyone’s word for it or assume that it will be
updated on your credit report. Are you starting to see a trend? Whatever you
do, get confirmation in writing! If you don’t, it will make trying to correct
the error even more difficult.
The only way to avoid having your cell phone
report on both Equifax and TransUnion is to go with a pay-as-you-go contract.
If you are on any other type of plan, keep your fingers crossed. You don’t want
to be one of the unlucky ones to have a cell phone error or problem tarnishing
your credit.
To improve your chances of avoiding any
issues, ensure you pay the full amount owing each month and keep good records.
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