Does It Affect Your Credit if You Cancel a Phone Contract?

The moment you sign up for a cell contract and get your hands on an all-singing, all-dancing shiny new phone, your device will be but a few weeks away from becoming yesterday's news, if not obsolete. If you find yourself halfway through a cell phone service agreement and want to jump ship to get your hands on the latest smartphone, or simply because you're unhappy with the service you're receiving, you can do so without leaving a stain on your credit, as long as you play by the rules.

Firing a letter off to your service provider telling it that you're canceling your contract and stopping your monthly payments will result in black marks appearing on your credit file. If you want to free yourself from a cell phone service agreement early without harming your credit, you'll need to do things by the book, even if you feel you've been wronged by your carrier. Before doing anything, contact your service provider to find out what your options are. If you simply stop paying, your carrier will report your account as having fallen into arrears to the credit bureaus, which will do nothing for your creditworthiness.

You'll typically be asked to pay an early termination fee to get out of a cell phone contract. The amount you'll be asked to pay will depend on a number of factors, including the type of handset you own, the monthly cost of your contract and how much time is left on your agreement. Once you've paid this, your account will be closed, and no adverse information will be added to your credit file.

Don't cancel your payment until you've received confirmation everything's been settled. If your carrier goes to take one last installment from your bank account and gets knocked back, it may report you as having missed a payment.

If you don't like the idea of coughing up an early termination fee and feel as though you've received poor service from your current provider, document any dropped calls or other issues. Although the terms and conditions of your contract will say your carrier can't guarantee service and coverage, you may be able to squirm out of your agreement if you can prove you've been treated particularly shabbily.

If your carrier refuses your request on the grounds of poor service, threaten to contact the Better Business Bureau about its conduct. Again, never stop your payments during a dispute, which could result in negative data being added to your credit record.

Ask for an upgrade if you haven't got long to go on your contract. Most carriers will allow you to move onto a different plan and grab a new handset if you're only a few weeks or months away from the end of your agreement. Applying for a new cell agreement with another carrier will leave a footprint on your credit record, which could have a negative impact on your file for a limited period, so going for an upgrade could help maintain your creditworthiness.