Getting an iPhone with Bad Credit

To the frustration of many, AT&T is still the sole wireless provider for the iPhone. That means that all iPhone users must sign a two-year contract with the company and abide by its rates and terms. Whatever AT&T says goes, and that includes charging up to $800 as a security deposit to those who have bad credit.

The AT&T credit check for iPhone users

AT&T requires a credit check of all potential iPhone buyers. This is the first step to buying an iPhone, whether in stores, online, or over the phone. This credit check is the reason you have to supply your Social Security number; your SSN is needed to pull your credit file. But don’t worry: this credit check is “soft” so it won’t ding your credit score.

How AT&T determines the security deposit amount

Depending on how bad your credit is, the AT&T security deposit can range from $100 to $800. Here’s the weird thing though: AT&T never actually sees your credit score. Instead, each of the bureaus—TransUnion, Equifax, and Experian—recommend to AT&T how much of a deposit to charge you. (I can only assume this number is based on a formula that AT&T has prescribed and dictated to the credit bureaus. Otherwise, it means that the credit bureaus, who have no business doing so, are the ones dictating how much extra money we have to cough up to get our iPhones activated.) Once it receives these three deposit amount recommendations, AT&T supposedly takes the lowest one. That is the amount they quote to you, the potential iPhone customer.

There is no way around this deposit. No pre-paid plans are offered for the iPhone. So if you absolutely have to have an iPhone and you have bad credit, you’ll have to pay up. The upside is that you’ll get your deposit back in 12 months (halfway through your contract period).

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Your timely AT&T payment history goes unreported and unappreciated

You may be wondering if AT&T reports your payment history to the credit bureaus, since it so heavily relies on their input to grant you service in the first place. But no, AT&T doesn’t report your timely payments to the credit bureaus. So owning an iPhone will not help you to build good credit.

AT&T doesn’t even report your delinquent payments. Instead, it will just shut off your phone service, keep your deposit (if you had to pay one), and turn over the remaining amount you owe to a collection agency. This is where your credit will take a nosedive: the collection agency will report the collections account to the bureaus, and that account will remain on your credit report for seven years. If you have more questions, you can all AT&T toll-free at 1-800-331-0500.

My advice if you really want an iPhone? Bite the bullet and pay the deposit, then make timely payments to AT&T every month. In 12 months when you get your deposit back, do something good with the money, like start an emergency fund, pay down credit card debt, or open a CD.

Did you have to pay a security deposit when you got your iPhone? How much was it, and how bad was your credit?

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