Nearly all of us own cell phones today. We may not think of cell phones as a line of credit, but they are and they can lower your credit score. Both applying for a new wireless contract service and paying, or not paying, your bill each month can both affect your credit score. 

Applying For A Contract

To start a new cell phone account, you will need to apply and the company will then check your credit score. The company wants to make sure that before they lend you airtime and a free phone that you will be a good risk. Before applying for a cell phone contract, check my credit score. A low score could mean a denial of service or a large security deposit. Some companies may even make you pay more each month if your credit is bad.

Each time a company, wireless providers included, check your credit score it can ding your credit report. Every inquiry will make your score suffer a little bit. This won't hurt you unless you apply for service at many different places in a short time period. Applying for service from different companies in the same day or week can lower your score.

Reporting Payments To Credit Bureaus

Once you have started your contract with a wireless provider, they can report monthly payments to the three credit bureaus. Some companies such as AT&T report all payments whether they are on-time or late. Other companies only report late payments. Before deciding on a wireless provider, ask what the the company's policy is on reporting payments. Payment history is up to 35% of your total credit score, so paying your cell phone bill late or not at all will harm your score.

Spring and Verizon do not report any monthly payments to the credit bureaus. This doesn't mean that you won't be penalized if you don't pay your bill. Nearly all wireless companies will turn your account over for collections if you default on your account. This collections activity will be on your credit report and will lower your score. Verizon starts collections after 120 days of non-payment. AT&T sends three letters before sending your account to a collection agency.

Prepaid Cell Phones

You will need good credit to get a cell phone and you must keep paying your bill on time to keep your good credit. If you have bad credit, consider a prepaid cell phone. Prepaid phones are good alternatives to traditional plans that are more expensive due to poor credit as well.

One downside to a prepaid plan is that each minute might be more expensive than a monthly contract plan. This is yet one more example of how those with poor credit must pay more for products and services making it even harder to improve their credit.

Some people prefer prepaid cell phones. There is no contract, so you can change wireless providers at any time for any reason. Prepaid phones can be cheaper per month if you don't use the phone a lot. For emergency phones, prepaids are usually a cheaper alternative to a monthly plan.