How Your Phone Contract Affects Your Credit Report

Posted by Tom Magor in Credit Reports on 6 September 2018 - Tom is a Senior Credit Analyst at checkmyfile.

Some people only really consider their Credit Report and the information it contains when they’re about to apply for a traditional form of borrowing, such as a credit card, loan or mortgage. That's why for some it can come as a bit of a surprise to learn that many of the same checks are involved when attempting to take out a mobile phone contract.

Not only that, but the way you make repayments on a phone contract can have a big impact on your ability to obtain credit elsewhere in the future.

Using your Credit Report to get a mobile phone contract

As smartphones continue to evolve, the price that manufacturers can charge for handsets is also on the increase. That means that for the latest models (and even a lot of older ones), consumers are required to pay an up-front fee for the phone itself, in addition to a long-term contract.

Ongoing monthly payments are designed to cover both any remaining cost relating to the handset, as well as service usage which incorporates calls, texts and data. This monthly fee can be considered a form of credit, as payments are made after the usage of the service. Some providers even offer so called 'split contracts' where the two elements are clearly separated – more on that later.

Because it’s a form of credit, you’ll need to pass a credit check before you can be granted a contract phone. Although it should in most cases prove easier to get approved than for other traditional forms of borrowing, it’s still very possible to get declined or at the very least have restrictions imposed - such as a bigger up-front fee, or a monthly usage limit.

If a network provider comes across adverse information on your Credit Report, or if you’ve got a very limited Credit History, you may struggle to get accepted for some of the latest phone models. For that reason it’s important to check your Credit Report before you apply, so you can see what the phone provider sees when they are assessing your application.

To see what the mobile providers will see, you can try checkmyfile FREE for 30 days, then for just £14.99 a month after.

The ultimate decision with regards to how the information on your Credit Report is interpreted and whether that results in the application being accepted or not, rests with the prospective lender (in this case the phone provider) and each will have a different appetite for ‘risk’ (i.e. how likely you are to miss payments or worse, default on the account). Without checking your Credit Report for yourself though, you won’t know what information they are basing their decision on.

How does a phone contract affect your Credit Report?

As with any form of borrowing where the onus is on the customer to make monthly payments on time, there is the potential to pay late or miss one completely. If this happens, it’s your Credit Rating (and ability to get further forms of credit in the future) that will suffer and so it’s crucial to ensure that this doesn’t happen.

Any late payments will be recorded, passed to the UK’s Credit Reference Agencies and will be visible to other organisations checking your full Credit History in the future.

Not all contracts are reported in the same way. In some instances, phone suppliers (most notably O2 through its ‘Refresh’ tariff) will report two accounts on your credit file. In these cases, the agreement is separated between the cost of the phone itself and the monthly service usage. The handset is technically reported as a loan, which although in the majority of cases very small and unlikely to affect your creditworthiness significantly, it is worth checking.

An interesting note is that mobile phone contracts aren’t currently incorporated within the Consumer Credit Act and therefore, a lender can report an account to have entered default status when they consider the relationship with the consumer to have broken down. The account doesn’t have to be characterised by a period of arrears and it isn’t mandatory that a Default Notice is served.

Defaults are among the most severe of all negative markers that can appear on your Credit Report, and can have a significant effect on your ability to get accepted for credit for the entire six years that they remain visible to prospective lenders. If you think you may have missed mobile phone payments in the past six years, it may be worth checking your Credit Report to make sure that there is nothing that may hinder your finances in the future.

Even if you don’t have reason to think that there could be a late payment recorded against you, it’s worth checking. Errors are rare, but they do happen and checking that everything is as it should be might just save you a lot of time and hassle when you next go to apply for finance.

You can try checkmyfile FREE for 30 days, then for just £14.99 a month afterwards, which you can cancel at any time online or via phone or email. You’ll get access to the UK’s most detailed Credit Report, with information from 4 Credit Reference Agencies, not just 1 so you can see what lenders see. You’ll also get full support from our team of Professionally Qualified Credit Analysts so if you have any issues or queries, you don’t have to go it alone.

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