Editorial Policy

6 credit tips for getting a cellphone

Allie Johnson

July 13, 2015

You walk into the cellphone store expecting to pick out a snazzy new phone, sign a contract and go on your way. Then you get the news: The company has to check your credit.

If you want to sign up for a cellphone contract that comes with a “free” or cheap phone — or if you want to finance the purchase of a pricey smartphone — the cellphone provider will want to make sure you have decent credit, says John Ulzheimer, president of consumer education at CreditSesame.com.

The good news is that you don't need excellent credit to qualify for a contract or phone financing. And, if all else fails, you can go with a prepaid plan or fork over a down payment for your device.

Before you shop for cellphone service, here are six things you should know about cellphones and credit:

1. Switching cellphone companies? Prepare for a credit check. Most cellphone providers will do a credit check for new customers who want a plan with a contract — but not with the big three credit bureaus, says Linda Sherry, director of national priorities for Consumer Action, a consumer advocacy group. Cellphone providers usually check with a specialized credit reporting agency that shows how you've handled cellphone contracts and phone bills in the past, she says. You don't need stellar credit, though: Most cellphone providers look for a credit score of at least 650, which is the dividing line between subprime and prime, Ulzheimer says. “That's pretty low,” he says.

2. Even if you just want to finance a phone, the provider will peek at your credit. Smartphones can cost a fortune, and not everyone can afford to plunk down $500 or more at once. So, some carriers offer installment payment plans in which you get the device, then pay it off a little at a time on your monthly bill. However, the carrier will check your credit first. For example, the Verizon Edge program, in which the cost of your device is split into 24 monthly payments, requires a credit check. If you have bad credit, you can still get a phone, but you must make a down payment.

3. Bad credit? You have options. Here are three ways to get cellphone service if you have shaky credit:

  • Put down a deposit. Even if your credit's terrible, most cellphone providers won't deny you a contract outright unless you have an outstanding debt with that company, Ulzheimer says. However, providers likely will require a security deposit that varies based on your credit score — and it might be hefty. One customer on an AT&T forum complained that AT&T asked him to pay $500 per line, while Verizon had required $400 per line. But yours might not be that high: CreditForums.com offers a cellphone deposit calculator in which you can plug in the carrier, number of lines and score to get an estimate of your deposit. For example, according to the calculator, a consumer with a score of 650 getting one line from Sprint might have to pay a deposit of $100. The good news: Many carriers will refund your deposit after a year of on-time bill payments.
  • Get a co-signer. As with a credit card or a bank loan, a consumer with bad credit can get cellphone contract by asking mom, Aunt Marge or a pal with great credit to co-sign. But that's a bad deal for the co-signer, who could be on the hook for the whole bill and take a credit hit if the bill ever ended up in collections, Ulzheimer says.
  • Ditch the contract. Your best option might be to go with a prepaid plan, Sherry says. “Prepaid plans are better than they used to be,” she says. Most cellphone companies offer a variety of no-contract options that don't require a credit check, as long as the customer brings his own phone or buys one outright. Verizon, T-Mobile, Sprint and other carriers offer no-contract, prepaid plans.

4. If you have iffy credit, you might pay more for your phone. Some cellphone providers advertise great deals, but limit these offers to “qualifying customers” — meaning those who have stellar credit. But one out of two customers doesn't qualify for the best deals, such as “free” iPhones and $0 down phone financing, according to T-Mobile. So, in January 2015, T-Mobile introduced “Smartphone Equality,” in which every T-Mobile customer who has paid his bill on time for 12 months in a row can get the best advertised prices on smartphones and tablets with no credit check or down payment.

5. On-time payments won't build credit. Cellphone companies generally don't report payment history to the major credit bureaus, TransUnion, Equifax and Experian, so don't count on building good credit by paying your cellphone bill promptly, Sherry says. On the flip side, a late payment or two might not hurt your credit, but you'd have to ask your carrier to be sure.

6. But it's crucial to pay your bill on time. Any late payments might get reported to a specialized credit reporting agency, which could prevent you from getting a good deal if you decide to switch carriers, Sherry says. Also, if you fail to pay a bill and it gets sent to a collection agency, the agency probably will report to the three major credit bureaus, Sherry says. In that case, you could end up with a collection, which is a negative item that can stay on your credit report for seven years, according to MyFICO.com.

“If you've mistreated your phone account in the past, you might get told you can't have another one,” Sherry says.