If you are debating whether to pay for a smartphone in installments or to buy it outright, one important question to ask is whether a new smartphone plan will affect your credit rating.
There seems to be a lot of information online, but there are many conflicting reports about what a smartphone plan actually does to your credit score. Let’s take a look at what the real answer is.
How applying for smartphone contracts affects your credit score
When you apply for a smartphone plan, it’s very likely that a credit check will be carried out. Sometimes, credit checks can impact your score, but it shouldn’t be too much of a concern unless you’re frantically searching for loans, credit cards, and other financial plans on the regular.
There are two types of credit checks - hard checks and soft checks. With a hard check, the lender you are applying for will perform a full search of your credit history and add a note to your credit report that other lenders will see when they check your score in the future.
With a soft check, only some initial information is given to the lender. They can use this to assess whether you’d be a suitable person to lend to. Soft checks do not get a note added to your credit score. There’s nothing bad with a hard check, but once again if you are regularly searching for credit it can damage your score because it will show other lenders you are potentially irresponsible with your financial decisions.
The general consensus is that hard checks can affect your score for six months, so to avoid that, it’s best to be sure you want to purchase a smartphone before performing a hard check. If you want to shop around before you buy, keep an eye out for lenders or comparison websites that offer soft checks.
What happens if you miss smartphone payments?
If you miss a smartphone payment, it can make an impact on your credit score. It’s always best to pay on time. Even if you are struggling for money, scraping together that extra cash to pay your mobile bill on time will help you out in the long term.
It’s hard to know exactly how much a late phone payment will affect your credit - it will depend on the lender and also the criteria new lenders may score you on in the future. An article by the Guardian shares a story of a man who almost didn’t get his £220,000 mortgage due to an £8 late payment on a mobile phone contract. This seems like an unlikely situation, but it is one that showcases the potential damage for late payments.
If you regularly make late payments, your score will be damaged considerably more, and you may have to pay more. This will depend on the terms you set with your lender. Later down the line, you may find it hard to get a good deal on a mortgage or a loan. If you are in a situation where you cannot pay, or you notice you have a mark on your credit report for a late payment, the best thing you can do is communicate with your lender.
Many lenders have teams to help those struggling with finances. You can ask them about their policies for late payments and ask if they are willing to give you extra time or set up a future payment so that it doesn’t impact your score. In this same vein, lenders may be willing to let go of past missed payment marks on your credit score if you communicate with them.
Finally, you should check your credit report regularly. Sometimes, mobile phone providers may keep your contract open after the final payment has been made, or there may be errors that you might need to resolve with the lender. You can get a free credit report directly from giffgaff gameplan.
Can a smartphone plan improve my credit score?
The next important question to ask is whether a smartphone plan can improve your credit score. There are mixed reports on the internet. Some suggest that a smartphone plan won’t have any effect, whilst others say it can make a noticeable improvement.
It seems to depend from lender to lender, but the overall consensus is that any proof that you can make regular repayments on time will help you when applying to future lenders. A smartphone plan certainly won’t have as much weight as making regular payments to a credit card or loan, but it has the potential to at least put you on the map.
With all this in mind, paying for a smartphone in monthly installments can be a good choice if you are comfortable with managing the monthly payments. If you are confident you can pay back your smartphone payments each month for the duration of your contract, there’s no reason not to pay for a smartphone on a monthly basis.
It can be a great way to spread the cost of a smartphone and the overall cost may not be that much more than paying for the smartphone outright anyway. Typically, you must purchase a smartphone plan that is bundled with data, minutes, and texts. With giffgaff, it’s possible to pay for a smartphone as part of a financial agreement and you can pay for your data separately.
With this you are given the freedom to change your usage in the middle of your contract. If, for example, you start to use your texts or data less, you can simply choose a cheaper goodybag the next month. You can go to our mobile phones page to learn more about how much each smartphone would cost on a monthly plan.