As technology continues to advance, owning a cell phone has become a necessity. However, with the introduction of phone contracts, many people are left wondering whether or not taking out a phone contract can affect their credit rating. In this article, we will look at how phone contracts can affect your credit score and what you can do to protect your credit rating.
To start with, it is important to understand what a credit score is. A credit score is a numerical representation of your credit history. It ranges from 300 to 850, with higher scores indicating better creditworthiness. This score is used by lenders to determine the likelihood that you will be able to repay a loan or credit card balance.
Now, let’s consider how taking out a phone contract can affect your credit score. When you take out a phone contract, the mobile service provider will run a credit check to determine your creditworthiness. If you have a good credit score, you are more likely to get approved for a contract. However, if you have a poor credit score, you may be denied or required to pay a higher deposit.
Additionally, once you have a phone contract, your payment history can impact your credit score. If you consistently make on-time payments, this can help to improve your credit score. On the other hand, if you miss payments or make late payments, this can negatively impact your credit score.
Moreover, if you fail to pay your phone bill altogether, your account may be sent to a collections agency. This can have a severe impact on your credit score, as collection accounts can remain on your credit report for up to seven years.
To protect your credit score when taking out a phone contract, it is important to do your research before signing any contracts. Look for mobile service providers that offer the best deals and contracts that fit your budget. Additionally, make sure to read the contract carefully and understand the terms and conditions.
In conclusion, taking out a phone contract can affect your credit rating. However, if you make on-time payments, you can use it as an opportunity to improve your credit score. On the other hand, failing to make payments can have a severe negative impact on your credit rating. Therefore, it is important to be responsible and mindful of your financial obligations when entering into any agreements.