Does Cancelling a Cell Phone Hurt Your Credit?

Some cell phones have pay-as-you-go plans, while others require you to sign a contract and pay a monthly bill for service for a specified time, such as one or two years. You can terminate the contract, but many providers require payment of an early cancellation penalty if you do so before the agreed-upon time frame expires. This may hurt your credit under certain circumstances.

Policies

Cell phone providers all have different policies about reporting your account activity to the Experian, TransUnion and Equifax credit bureaus. Some report nothing, while others alert the bureaus to both on-time and late payments, according to an article by Carrie Davis on the Spend on Life financial website. Some companies do not report timely payments but let the bureaus know when you are delinquent. All late payment reports damage your credit score.

Cancellations

Cell phone companies that report all payments to the credit bureaus simply stop sending any information if you cancel your account and part on good terms by paying the final bill and any required penalty. You may hurt your credit score if you cannot or will not pay the bill or fee because the cell phone provider may turn the account over to a collection agency. Collection accounts appear on your credit reports, regardless of whether the original creditor was reporting the account. You may also get a judgment on your reports if the collector sues you successfully for the debt. Your credit rating goes down due to any of these actions because it is based on your credit report data, the Federal Reserve Bank of San Francisco warns.

Effects

A cell phone cancellation without repayment of the final bill and penalty fees often keeps you from getting another monthly service plan. Kiplinger's Personal Finance Magazine online reports that cell phone providers routinely do a credit check when you try to sign up for a new plan. You are likely to be rejected when the bad debt shows up on your credit reports. The unpaid cancellation also hurts your chances of getting other kinds of credit, like loans or credit cards. The My FICO credit score education site advises that it falls into the area of delinquent payments, which is 35 percent of your score.

Prevention

Prevent bad effects on your credit rating by holding off on cancellation of your cell phone contract if you cannot pay the required fee. Do not sign long-term contracts if you are worried about fulfilling them. Use a pay-as-you-go cell phone service instead, as those accounts have no effect at all on your credit.