Paying certain credit obligations can improve your credit, including cell phone financing. Learn more about cell phone financing and how it affects your credit.

Written by Michelle Lambright Black
Reviewed by Ana Gonzalez-Ribeiro, AFC®

Paying your credit obligations on time can help you build good credit. Knowing this fact, you may have considered financing a new mobile phone to establish credit. But there’s a potential problem with this strategy. It doesn’t always work.

In some situations, cell phone financing will not impact your credit score. Yet at other times, financing a cell phone does have the ability to affect your credit — either for the positive or the negative. So, follow along to learn more on how cell phone financing can affect your credit.

Cell phone financing options

The cost of a cell phone is higher than it was in the past. In 2020, the average price of a new smartphone ranged from around $700 to $900 according to Android Authority[1]. Premium smartphones, meanwhile, feature an average cost of almost $1,200. Due to the high cost, paying cash for a mobile phone might not be in your budget.

Putting back a little money each month to save up for your next cell phone purchase can be a solid approach to this challenge (along with searching for an affordable phone option). But some people prefer to finance their purchase and spread out the expense over time.

Below are two common types of cell phone financing:

Phone Manufacturer Financing

Several phone manufacturers, like Apple and Samsung, offer financing options to consumers. For example, you can open an Apple Card[2] to take advantage of interest-free financing on eligible Apple products, including iPhones. Samsung[3] also offers a 0% APR line of credit (through TD Bank) on eligible purchases. However, both of these options are subject to approval, meaning you’ll likely need good credit to qualify.

Wireless Carrier Financing

Wireless carriers, like Verizon, AT&T, and others may offer a lease or an installment plan for cell phone purchases. Some payment plans may even feature no interest fees. (Tip: Always confirm the details before you enter into a payment agreement.) But the condition of your credit will determine whether you’re eligible for this type of financing. If you qualify, you may have to pay the full sales tax when you purchase the phone, even if you’re setting up a payment plan.

Keep in mind that getting a cell phone with bad credit might be a challenge. Some service providers might deny your application or require a down payment to open a new account.

Which phone financing options can help build credit?

As mentioned, some phone financing options may help you in building credit while others do not. Here’s a closer look at the two financing options above and how they might impact your credit score.

Financing through a manufacturer or phone company might help you build credit.

This approach generally involves you applying for a line of credit or a credit card, and then using it to pay for your new device.

Note that while these accounts could help build your credit, they can also have the opposite effect. First, applying for new credit may cause a hard credit inquiry. And while a hard inquiry tends to have little and sometimes no impact on your credit score, if you make late payments or default on your debt the negative impact could be severe.

Financing through a wireless carrier probably won’t help you build credit.

But the company might check your credit as part of your application to finance a new device. If that credit check is classified as a hard credit inquiry, there’s a chance it might affect your credit score in a negative way. But, again, if you do experience a credit score drop it will probably be slight. According to FICO[5], most people see a credit score dip of less than five points when one additional hard inquiry shows up on their credit report.

Why don’t all cell phone financing options build credit?

Credit-building potential hinges on whether the company that provides the financing reports the account to the credit bureaus — Equifax, TransUnion, and Experian. If an item doesn’t appear on your credit report, it will not influence your credit score.

In the case of wireless carriers, these companies typically do not sign up to be data furnishers with the credit reporting bureaus. If a company doesn’t furnish data to at least one credit bureau, then the account cannot show up on your credit report.

Financing that’s available through manufacturers is different. In general, these companies partner with a bank that approves or denies your application for financing. If you qualify for a credit card or line of credit, the issuing bank may report your account and its payment history to the credit reporting agencies.

Alternative financing options

In addition to the financing options above, there are several alternative ways you can use credit to buy a phone.

Can I get a loan to buy a phone?

You may be able to use a personal loan to buy a phone. And if you manage that loan well, it may have the potential to help you establish some positive credit history.

However, just because you can do something doesn’t mean that you should. In general, taking out a loan to purchase a phone is probably not a great financial move.

The average interest rate on a personal loan is 9.39% (according to Federal Reserve data[6] from August 2021). And while that rate may be significantly lower than personal loan APRs a few years ago, those interest fees can still add up over the course of a few years.

Additionally, if your credit falls into the fair or bad credit score range, the interest rate a lender offers you could be a lot higher (if you can qualify). A higher APR will lead to you paying more interest overall, and it may increase the size of your monthly payment too.

Why not just use a credit card?

There’s nothing wrong with using a credit card to buy a cell phone if you have the funds to pay off your purchase right away. In fact, this approach could earn you extra rewards or cashback. But if you need to finance the cost of a cell phone over time, credit cards tend to be a poor choice.

The average interest rate on a credit card is 17.13% (according to Federal Reserve data[6] from August 2021). If you use a high-rate credit card to finance the cost of a phone, you could wind up paying much more for your purchase over time.

If you have a 0% APR on a new credit card account, a credit card could be a more affordable financing option. But there’s another problem with this approach. Revolving an outstanding balance on your account can increase your credit utilization ratio, and high credit utilization can damage your credit score even if you make every monthly payment on time.

Credit cards are a helpful financial tool with the potential to help you build credit and sometimes earn valuable rewards along the way. But the best way to use your credit cards is to pay off your statement balance each month. If a cell phone costs more than the amount of disposable cash you have on hand, it’s probably not a good idea to put the purchase on your credit card.

What about “buy now pay later”?

Another way to finance the cost of an expensive cell phone purchase is to use a buy now pay later (BNPL) service. These services have been around for many years. But they’ve become more popular during the pandemic.

In some cases, retailers offer BNPL installment plans without added interest costs. At other times the APR on BNPL plans can be as high as 30%, and late payment fees can kick in if you don’t make a payment on time. So, be sure to review the installment plan’s terms and conditions before you apply.

Making smaller cell phone payments instead of coming up with a lump sum for your cell phone purchase can be an appealing offer, especially if there are no interest fees involved. However, you should still be cautious with this approach. BNPL can create future financial problems if you don’t manage the process correctly. And they won’t help you build credit history unless the BNPL company reports account activity to the credit reporting agencies.

Which financing option will be the cheapest?

Any financing option that offers 0% interest may be an affordable way to spread out the cost of a cell phone purchase over time. Just be on the lookout for added fees and other drawbacks like prepayment penalties.

Also, remember that the APR isn’t the only factor that matters when it comes to financing. If you’ve decided that you want to finance a cell phone purchase, you should aim for options that either have the potential to help you build credit or those that at least will not hurt your credit score.

Can paying your phone build credit?

The average price of monthly cell phone service in the United States was $127.37 in 2020[7]. Yet most wireless service providers do not report account activity to the major credit bureaus. So, no matter how much you pay for cell phone service, it typically will not help you establish a positive credit history. (Note: If you default on a cell phone bill, you might wind up with a credit-score-damaging collection account on your credit report.)

There is a partial workaround if you’re looking for a way to get credit for your positive cell phone payment history. Experian offers a free service called Experian Boost that can help you build credit in a nontraditional way.

With Experian Boost, you can give the credit bureau permission to access your bank and credit card accounts. The system will search for certain payments for subscription services (like Netflix® and Hulu™) and utility payments — including those made to cell phone providers. If you have eligible cell phone bills, the system will add them to your Experian credit report.

Once a positive cell phone account makes its way onto your Experian report, it does have the potential to improve certain Experian-based credit scores. According to Experian[8], the average Boost user with a thin credit file saw a 19 point increase from using the service.

If you want to learn more about how bills affect your credit, read our guides on “does paying bills build credit,” and “does paying utilities build credit.”

Be choosy about financing a phone

Financing a cell phone can make sense in some situations. Let’s say you can afford to buy a phone outright. However, you receive a zero-percent interest offer that won’t hurt your credit and lets you hold onto your cash. If you do something constructive with the funds you saved (like paying down high-interest debt or putting the cash in an emergency fund), then financing a phone could be a good move. And if you choose a financing option that helps you build credit while holding onto your cash, even better.

On the other hand, if the only reason you’re considering cell phone financing is that you want to build credit, there may be better options. Depending on your credit situation, you might want to consider a credit builder loan, a credit card, or even becoming an authorized user on a loved one’s account.

Sources:

  1. Android Authority, “Did Smartphones Get a Lot More Expensive in 2020? Let's Look at the Numbers.” https://www.androidauthority.com/smartphone-price-1175943. Accessed December 27, 2021
  2. Apple, “Healthy Finances. Family Style.”https://apply.applecard.apple/. Accessed December 27, 2021.
  3. Samsung Direct Support, "What Is Samsung Financing?" https://order-help.us.samsung.com/hc/en-us/articles/360057080614-What-is-Samsung-Financing. Accessed December 27, 2021.
  4. Self. Credit Builder, "What Is APR and Why Does It Matter?" https://www.self.inc/blog/what-is-apr-and-why-does-it-matter. Accessed December 27, 2021.
  5. myFICO, "How Do Credit Inquiries Affect Your FICO Score?" https://www.myfico.com/credit-education/credit-reports/credit-checks-and-inquiries. Accessed December 27, 2021.
  6. FRED, "Finance Rate on Personal Loans at Commercial Banks, 24 Month Loan." https://fred.stlouisfed.org/series/TERMCBPER24NS. Accessed December 27, 2021.
  7. CNBC, "How to save money on your phone bill" https://www.cnbc.com/2021/06/15/how-to-save-money-on-your-phone-bill.html. Accessed December 27, 2021.
  8. Stefan.lembo-Stolba. Experian, "Experian Boost Helped Raise American Credit Scores by over 50 Million Points." https://www.experian.com/blogs/ask-experian/experian-boost-study. Accessed December 27, 2021.

About the author

Michelle L. Black is a leading credit expert with over 17 years of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting and debt eradication. See Michelle on Linkedin and Twitter.

About the reviewer

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.

Editorial Policy

*Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s). *

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Written on April 21, 2022
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