Mobile phones have become a key part of modern life, and yet cell phones made with the latest technology remain unaffordable for many people. As a result, many consumers opt to pay for their phones over time, an option known as financing.
Financing a purchase is a lot like getting a loan, which means that sometimes, it can help you build credit. However, that’s not always the case, depending on what financing options you pick.
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Will financing a phone build credit?
Yes, financing a new cell phone can help you build credit if the company you’re financing with reports your payments to one of the three major credit bureaus (Experian, Equifax, or TransUnion) that create credit reports.
Many companies that offer financing report to the bureaus, but not all do. This means that whether your phone purchase will affect your credit depends on who you buy it from:
- Phone manufacturers: The actual companies that manufacture phones, such as Apple and Samsung, usually report payments to the credit bureaus, allowing you to build credit.
- Phone service providers: On the other hand, because wireless carriers (companies that provide phone plans) don’t usually report activity to the credit bureaus, financing with them generally won’t help you build credit.
- Smartphone leasing companies: Leasing a phone isn’t quite the same as financing. Your payments aren’t going toward ownership—you’re essentially just renting the phone. Most leasing companies don’t report to the credit bureaus, which means leasing a smartphone won’t build credit.
How to build credit by financing a phone
If you’re looking to buy a new phone and want to build credit in the process, then you have two main options.
1. Finance through a phone manufacturer
When you finance a phone directly with the phone manufacturer, they’ll usually open a new credit account for you and begin reporting your account activity to the credit bureaus. The account could be either an installment loan (similar to a personal or auto loan) or a revolving credit account (i.e., a credit card). 1 2
Similar to when you get a new loan or credit card, you’ll build credit with your new credit account as long as you consistently make your payments on time. Doing so will improve your credit score by strengthening your payment history, which is the most influential factor contributing to your score.
Examples of phone financing programs that build credit
The table below shows the financing options available from three major manufacturers: Samsung, Apple, and Google.
| Offer | APR (After Initial 0% APR Period) | Term | Issuing Bank |
|---|---|---|---|
| Samsung | |||
| 0% APR with Equal Monthly Payments | 29.99% | - 18 months ($1,000 minimum purchase) - 24 months ($500 minimum purchase) | TD Bank |
| Deferred Interest/No Interest if Paid in Full | 29.99% | - 6 months - 12 months | TD Bank |
| Apple | |||
| Apple Card Monthly Installments | N/A | - 24 months | Goldman Sachs |
| iPhone Installments | N/A | - 24 months | Citizens One |
| Barclaycard Visa with Apple Rewards | Variable | - 6 months - 12 months | Barclays US |
| Google Store Financing | N/A | - 24 months | Synchrony Bank |
All of these financing options will be reported to at least one credit bureau and will build your credit (assuming you make your payments on time).
2. Finance through a third-party seller
Instead of buying a new phone directly from the manufacturer, you can make your purchase through a third-party retailer, like an electronics store. This could be a good option if you already have a retail credit account with a store that sells phones, such as Best Buy.
Similar to financing with a phone manufacturer, you may be able to take advantage of interest-free promotional periods or member discounts when you finance your phone through a third-party retailer. You’ll be able to build credit as long as you make consistent on-time payments.
How financing a phone affects your credit score
If you finance a phone through a company that reports to the credit bureaus, then it can affect your credit score in either a positive or negative way, depending on how you handle your payments.
How phone financing can help your credit
Here’s how financing a phone can give your credit a boost:
- On-time payments: Making all your monthly payments toward your new phone on time will gradually build your credit by establishing a positive payment
- Better mix of accounts: If you previously only had an installment loan on your credit report and you open a revolving credit account to finance your phone (or vice versa), then the new type of credit account will give your credit score a small boost by improving your credit mix (a measure of the diversity of your accounts).
How phone financing can hurt your credit
Unfortunately, there are also ways that financing a phone can actually cause a drop in your credit score:
- Hard inquiries: When you apply for financing, you may need to pass a credit check, which could trigger a hard inquiry. Hard inquiries temporarily lower your credit score, although the effect is minor and usually only lasts for a few months.
- Late payments: If you fall behind on your payments, then the company you’ve signed your financing agreement with may report it to the credit bureaus. As a result, late payments will appear on your credit report and hurt your credit score.
- Drop in average age of accounts: If you open a new line of credit to finance your phone, then having the new account added to your credit report will negatively affect the length of your credit history (one of the main credit-scoring factors) by reducing the average age of your accounts.
Is financing a phone worth it?
Yes, financing a phone can be worth it if you qualify for a zero-interest offer, your credit file needs a boost, and you can afford the payments. However, you should carefully read the terms of your agreement beforehand to avoid getting stuck in a contract you’re not happy with.
In particular, check for the following points in your financing agreement:
- Penalties for paying off the phone early
- Penalties for switching phone carriers
- Late fees
- Minimum monthly payment required to avoid interest on promotional 0% APR offers
- Interest rate on interest-deferred financing offers
- Penalties for not paying off the phone by the end of the financing period
- Potential for phone upgrades
Also bear in mind that you may need to have a good credit score to qualify for certain offers.
Alternative ways to build credit
If you don’t really need to finance a new phone and you’re just looking for ways to build credit, then there are several other approaches you can try:
Become an authorized user
Becoming an authorized user on someone else’s credit card account will give you access to their credit line and instantly improve your credit score if the card issuer reports authorized user accounts to the credit bureaus. (Not all do, so be sure to check before taking this step.)
Apply for a secured credit card
A secured credit card requires a refundable deposit, which makes it easier to get than an unsecured credit card. They’re especially good if you have no credit or your credit history is insufficient to get other types of credit because secured cards usually have no minimum credit score requirement.
Get a credit-builder loan
A credit-builder loan is a good option if you have a limited credit history but you don’t want the risk that comes with financing a purchase. With these loans, you don’t get the money upfront—instead, you get access to the funds only after you’ve made all your payments.
