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Getting a cell phone? Mind that other number: your credit score

Good scores get quick contract approval, bad ones mean deposits

By LaRita Heet

Before you head out the door to buy an iPhone or other cell phone, consider your credit score first. A bad score often makes it difficult or costly to be approved for a cell phone contract.

Bad credit score affects cell phone deals
HOW CREDIT SCORES
AFFECT CELL PHONE DEALS

If you want to get the latest iPhone or other fancy cell phone, a bad credit score means dialing costs more dollars. Here's why:

  • Opening a cell phone account is a form of credit; the phone company is letting you use a service before paying for it.
  • Good credit means you get a phone without a deposit.
  • People with spotty or bad credit will have to pay a deposit, conform to spendiing limits or may be refused service entirely.
  • Phone companies don't employ traditional credit scores. Instead, they use specialty scores that measure customers' likelihood to default on phone bills.

Cell phone subscriptions almost tripled in nine years -- from 97 million in 2000 to 276.6 million as of June 2009, according to the International Association for the Wireless Telecommunications Industry. During that same period, the percentage of American cell phone subscribers grew 55 percent -- to 89 percent usage.

With so many new users requesting service, providers have developed different deals for different people, using credit to help define how many dollars your dialing will cost.

Proprietary scoring
Today's consumers should already be aware that their credit scores can mean the difference between getting a mortgage, job, credit card and, yes, even a cell phone. However, the cell phone carriers are tight-lipped about which magic numbers will send you home with the hottest new cell phone in hand.

Verizon Wireless spokeswoman Nancy Stark says Verizon's proprietary scoring models take into account a variety of factors.

"We do not use generic scoring models, such as the FICO score. Verizon Wireless uses a custom credit scoring model, which focuses on applicants' risk of not paying their mobile bill," says Stark.

"Sprint uses a credit scoring model developed specifically for Sprint to determine if a customer will be required to pay a deposit or be placed on a spending limit when they open an account," says Sprint spokesman James Fisher. "Because of our use of a proprietary model, our scores are not on a FICO scale, and for competitive reasons we do not discuss the approximate score level at which a spending limit or deposits are required."

Julie Pigott, vice president of marketing and customer support for SouthernLINC Wireless, an Atlanta-based regional wireless carrier with network coverage in parts of Alabama, Georgia, Mississippi and Florida, says SouthernLINC's contract approval standards are on par with those of national companies. However, SouthernLINC uses traditional credit scores to determine customers' creditworthiness, though Pigott declines to provide exact numbers.

Of course, if you've defaulted on a cell phone contract in the past, you can expect that to lower your creditworthiness in the eyes of any cell phone company that does its due diligence.

Deposit requirements
Overall, consumers whose credit scores don't pass muster with cell phone carriers have two options: go prepaid or pay a deposit. Deciding which is best for you depends on just how much your credit score is lacking, as well as how much you're willing to plunk down in the form of a deposit, according to experts.

Cell phone contract applications are typically handled in one of three ways:

  1. Declining an application.
  2. Approving the application with a deposit.
  3. Approving the application without a deposit.

To activate the 3G iPhone, according to the latest information available, you must complete a credit check for AT&T service. If you have bad credit, you may be required to pay a security deposit. Although AT&T will not release its rate card, the most commonly reported security deposit by customers with bad credit is $250 per line. However, consumers have reported on an AT&T online forum that they were asked to pay a deposit of $750. Other reports say AT&T's maximum security deposit is $1,000 per line. To apply for a new line of service, you'll need to provide your Social Security number, a credit card and your driver's license.

"Applicants with higher credit scores -- typically described as prime credit -- are generally not required to pay a deposit or be on a spending limit," says Sprint's Fisher. "Customers with credit scores lower than prime credit generally are given a spending limit and possibly a required deposit." In the mortgage industry, a subprime borrower is one who's FICO score falls below 620 or so. Determining whether cell phone companies will categorize you as prime or subprime depends on which carrier you turn to and what type of credit scoring model is used.

Customers with credit scores lower than prime credit generally are given a spending limit and possibly a required deposit.

-- James Fisher
Sprint spokesman

For example, a company may require a $250 deposit from a new customer with less-than-stellar credit, and restrict that customer from spending more than that amount. "If your bill gets too high too fast, they will stop you from making calls until you pay down your bill, so that sort of ensures you won't run away owing too much money," says Izzy Ginzberg, small business consultant and CEO of Monetized Intellect in Brooklyn, N.Y.

"Our goal is to sell mobile service, not financial lending -- and we want more customers to be able to enjoy the benefits of the Verizon Wireless network. So we do not deny credit to anyone applying for wireless service, but may require a deposit," says Stark. "If an applicant does not want to pay a deposit, we have plenty of prepaid options available."

Unlike many of the national companies, SouthernLINC does not offer customers the option to pay a deposit if their credit scores are lacking. "One of the reasons that we require that our customers meet certain credit criteria is because we sell the phones for less than we buy them from the manufacturers, and we want to be assured that the customers that we're putting that acquisition cost into are going to, in return, pay us for the service that they use," says Pigott. In other words, if you don't have good credit, you can't get a phone from SouthernLINC.

Making sense of (unknown) scoring models
Ginzberg says that many cell phone carriers do not reveal their credit score requirements, since the company considers more than just someone's credit score for approval. 

"Credit history and negative items are on the credit report that we use to determine our end credit offer for the customer," says Sprint's Fisher.

If you have shaky credit, try forgoing the online instant approval option and head into a cell phone store, suggests Ginzberg. Sometimes, the company representative will consider additional factors beyond your credit score, such as whether you have a home phone in your name, if you have a physical street address (as opposed to a P.O. box) and your overall credit history. "If somebody has a credit report that is heavy -- they have a lot of credit, they've been around a while -- then they can get approved, even if their credit score is low, much easier than, for example, a college student with no real credit history except one credit card opened last month, even if their score is higher," says Ginzberg.

See related: Help for bad credit, Bad credit customers pay more for Apple iPhones, Options are limited for bad credit customers, Will that be cash, check or cell phone?10 things you must know about credit reports and scores  

Updated: October 22, 2009



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