Cell Phone Carriers

• Not every cell phone carrier reports monthly account payments to the credit bureaus. If your cell phone carrier reports payment status, breaking the cell phone contract early without complying with the contract terms may negatively affect your credit score. The debt balance of a broken contract may also be turned over to a collection agency. Fees and interest may also be added to the outstanding amount due on the contract. Both the cell phone carrier and the debt collector have the right to report the status of the account as a negative entry to the three credit reporting agencies.
  
  

Credit Score

• The Fair Credit Reporting Act allows the three credit bureaus to list negative entries on your credit report for up to seven years. Negative entries, such as breaking a cell phone contract, affect the payment history portion of your credit score. Payment history has the largest impact on your overall score, accounting for 35 percent of the total. The second area of your score that breaking a contract can affect is the outstanding debt portion. Outstanding debt, or the ratio between available credit and total debt, accounts for 30 percent of your score. Breaking the contract can increase the outstanding debt while reducing the available credit.
  
  

Contract Terms

• Breaking a cell phone contract may not affect your credit score if you comply with the terms of the contract. For example, if the contract states that you can terminate under certain conditions, comply and the company has no valid reason to report your account as a negative entry to the credit bureaus. Conditions for breaking the contract early may include fees, returning equipment and paying for any services used.
  
  

Options

• Whenever a consumer signs a cell phone contract, he must receive a copy of the agreement. Most major cell phone carriers also have a copy of their contract available online. Check the fine print to determine what options are open to you if you need to break the contract. If the contract is not available to you, call the carrier and discuss your options with customer service. It’s possible that you can break the contract without difficulty and avoid a negative entry on your credit report.