If you’re wondering whether financing a phone builds credit, the answer is that it depends. In some cases, financing a phone may help you build credit — but only if the financing company reports your payment activity to the credit bureaus.
Further, you’ll need to consistently make on-time payments if you’d like to build your credit. If your phone account ends up in collections, that will have the opposite effect on your credit. Here’s a closer look at how financing a phone can affect credit.
Key Points
• Financing a phone can build credit if the financing company reports payment activity to credit bureaus, which can help build credit scores.
• Consistently making on-time payments is essential for positively impacting credit scores through phone financing.
• Financing through major phone manufacturers or third-party companies often helps build credit, unlike most wireless carriers.
• A hard credit inquiry during phone financing may temporarily lower credit scores, but consistent payments can offset this.
• Verifying whether the financing company reports to credit bureaus is important for using phone financing to build credit.
How Does Cell Phone Financing Work?
Think of cell phone financing much like taking out a loan. But instead of getting funding, you’re getting a cell phone that you will then pay off over time.
Some people may decide to go this route if they don’t have enough money saved to buy a new phone outright. Others may even choose to lease a new phone, which entails making monthly payments that allow for an easy upgrade to a newer phone on a more regular basis.
When financing a phone, you’ll most likely sign a contract outlining the value of the phone and the payment terms, such as the monthly amount due and the term length.
Cell Phone Financing Options
You can find different cell phone financing options, including through your wireless carrier, phone manufacturer, or a third-party company. Depending on which option you choose, you may undergo a hard credit inquiry when you apply for financing. This could temporarily affect your credit score, given new credit is one of the factors considered in determining your FICO® score.
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Wireless Carrier
When you purchase or lease a phone through your wireless carrier, you’ll most likely be presented with different payment options. If you’re purchasing a phone, you may be able to sign up for a monthly payment plan — sometimes without incurring interest. You may even be able to negotiate a discount if you’re a repeat customer or choose certain wireless plans.
For those who want to lease, your wireless carrier may offer options like the ability to periodically upgrade your phone by trading in your existing phone for a newer model. Or, you may be offered the choice of buying the phone after a certain amount of payments.
Whichever option you choose, know that sales tax may not be included in your monthly payment — you’ll need to pay that upfront. Plus, you may need to make a down payment depending on your credit profile. Those with good credit, as opposed to a bad or fair credit score, may secure more favorable terms.
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Phone Manufacturer
Major phone manufacturers like Apple and Samsung typically have their own installment plans to purchase their phones. With these plans, you’re approved for a certain amount that you can use to finance a phone, which you’ll then pay off over time.
Like wireless carriers, some phone manufacturers have the option to upgrade to a newer model by offering credit for trading in your existing phone. In some cases, you may be charged interest, so it’s best to review the terms before committing to a plan.
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Third-Party Companies
Some electronics stores offer financing for cell phones if you open a store credit card and use it to purchase a phone. You may be able to make interest-free monthly payments if you pay for the phone in full within a certain period of time.
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Buy Now, Pay Later
Many retailers offer buy now, pay later options. Some don’t charge interest as long as you meet their payment terms. However, there can be fairly high late fees, so check the terms and conditions before proceeding.
Cell Phone Financing Options That Build Credit
Not all cell phone financing options help you build credit. That’s because not all companies that provide financing will report your payment activity to the major credit bureaus. As such, that information won’t get added to your credit report.
That being said, there are ways that financing a phone can help you build or establish credit. This includes the following:
• Financing through a phone manufacturer: Major phone manufacturers have their own branded credit cards or financing accounts on which they will report your activity to the credit bureaus. As long as you keep making on-time payments, this can help to build your score. To ensure your payment activity will affect your credit, it’s best to check with the manufacturer.
• Financing through a third-party company: Many stores offer branded credit cards that you can use to finance your phone. This is another way that financing a phone can build credit, since the company will generally report your payment information to the major credit bureaus.
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Cell Phone Financing Options That Don’t Build Credit
In most cases, financing a phone through your wireless carrier won’t help you build your credit. That’s because these companies most likely won’t report your payment activity to the credit bureaus. If your payment activity does not appear on your credit report, it won’t have an effect on your credit.
For similar reasons, buy now, pay later plans also usually don’t help you build credit.
Should You Finance Your Phone to Build Credit?
Financing a cell phone in order to build credit is best for those who are able to consistently make on-time payments. That way, this positive payment activity will get reported to the credit bureaus and help to build your score.
However, if you’re unsure whether you’ll be able to do so, it may make sense to find an alternative way to build credit. Even one missed payment could negatively affect your credit and land you in more debt than you’d originally anticipated.
Is Financing a Cell Phone Worth It?
Financing a phone can come with some advantages, such as freeing up cash you can use to fund other financial goals. If you can get financing with zero interest and know you’ll be able to pay off your phone in full within the agreed-upon terms, then it may be worth considering if you want to have more cash available to you. If your financing plan doesn’t have a prepayment penalty, it can even give you the flexibility to pay off the phone early if you want.
However, if you need to pay interest or you believe that you won’t be able to pay off the phone within the zero-interest period, you’ll need to carefully consider the financial repercussions. Interest charges can add up, so look at your budget to see whether you can truly afford the phone you want.
If not, it may be worth holding onto your phone until you can save up for a new one or choosing to finance a phone that costs less.
Other Ways to Build Credit
Financing a phone isn’t the only way to build credit. Some of your other options include using a credit card responsibly and taking out a personal loan.
Using a Credit Card Responsibly
Using a credit card responsibly can help you build credit. Because payment history is the biggest factor in what affects your credit score, making timely payments on your credit card balance can go a long way toward building your credit score.
Plus, if you pay for your cell phone with whichever type of credit card you have, you might secure cell phone insurance coverage. See if your card offers that as a perk.
Recommended: Tips for Using a Credit Card Responsibly
Taking Out a Personal Loan
Getting a personal loan is another way to potentially build credit. How personal loans can build credit score is through on-time payments you make on the loan, since lenders will report your activity to at least one credit bureau.
Before taking out a loan, however, check the terms carefully. You’ll want to look at what interest rate you’ll be charged and what your monthly payment amount will be.
The Takeaway
Financing a phone can help you build credit, as long as the financing company reports your payment activity to credit bureaus. You will need to check with the lender to learn what their policy is. If they don’t report to the major credit bureaus, you may want to consider other ways to finance your cell phone and help build your credit.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Do cell phone financing options report to credit bureaus?
Some financing providers report payment activity to the credit bureaus, while others don’t. For instance, wireless carriers most likely won’t report payments on cell phone financing, whereas phone manufactures and some electronics stores do.
Does upgrading your phone affect your credit score?
Upgrading your phone may affect your credit score if the financing company needs to conduct a hard credit inquiry before approving you for a phone. A hard credit inquiry typically lowers your credit score slightly for a brief period of time.
How long does a phone bill stay on your credit report?
Active accounts can stay on your credit report for as long as the account is open and being reported to the credit bureaus. If you have a charged-off account — meaning your creditor has tried to collect payment from you and failed — that information may remain on your credit report for seven years.
Photo credit: iStock/Delmaine Donson
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