credit & debt

Why Your Credit Score May Drop When You Shop for a New Phone Plan

Wireless carriers often use a scoring system that differs from the traditional credit score when it reviews new mobile customers.

Question: My FICO credit score hovers between 825 and 830, but when I recently switched cellular companies, my new provider reported that my score was 703. Is this inaccurate, or will the phone company’s report negatively affect my score going forward?

Answer: A likely scenario is that the cellular company is using a specialized score designed for the telecommunications industry.

Telecom scores are entirely different from credit scores and “703 might be a really good score,” says credit expert John Ulzheimer, formerly of FICO and credit agency Equifax. Telecom scores emphasize the customer’s behavior on accounts from companies within the industry. “A telecom score would consider how you've managed telecom accounts more than how you've managed credit cards or auto loans. And a lack of any telecom experience is also relevant,” Ulzheimer says.

Credit agency Experian offers a score to companies involved in telecommunications, energy and cable, and it operates on a scale of 400 to 900. A standard FICO credit score ranges from 300 to 850.

Keep in mind that credit scores come in many flavors, too. The FICO score that a credit card issuer may include with a customer’s monthly statement, for example, is from a different source than the free VantageScore credit scores that CreditKarma.com provides. And both FICO and VantageScore create a variety of scores, including separate ones derived from your credit reports with each of the three major credit agencies (Equifax, Experian and TransUnion). Most lenders report to all three agencies, although the information on your credit reports may vary. Any differences among reports are not usually drastic, says Gerri Detweiler, credit expert and education director with Nav.com, a site offering credit scores and information for businesses. If one agency’s report includes a mistake, however, such as a collection account that you don’t owe or some other black mark, it could have a negative effect on a credit score derived from that agency’s data.

You can check your credit report from each of the three agencies free every 12 months at www.annualcreditreport.com. Review your reports to ensure that they include only legitimate accounts in your name. You can also stay on top of your credit scores and reports from each agency free with CreditKarma.com (providing credit-report information and VantageScore credit scores from TransUnion and Equifax) and FreeCreditScore.com (offering your Experian credit report and a FICO score based on Experian data).

If a wireless carrier checks your credit report as part of its vetting process, that will result in a “hard” inquiry on the report, which may pull down your credit score a bit. But it shouldn’t drop more than about three to seven points, says Detweiler.

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