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As Equipment Installment Plans Become More Popular, Carriers Will Be Checking Credit Reports More Closely

March 13, 2015 - Written By Stephen Sard

Cellular customers in the United States have been making the move from the classic two-year contract plan to equipment installment plans or EIPs. Instead of paying a reduced amount of money for a smartphone upfront and then signing a two-year service agreement, customers can opt to pay for their device over two years, making a payment for their phone every month. These plans will usually allow a customer to change phones after a period of time has passed and switch to a newer device. Many consumers like this model as it will allow them to have the latest and greatest phones as they come to the market. Carriers like this idea because they no longer have to subsidize a cell phone upfront, which is a very costly business model.

However, this rise in customer acceptance of the EIP business model has caused the carriers to take a look at how they issue credit for their respective plans. This is due in part to the demand that these plans place on carrier profit margin. Sprint has taken steps to curtail generous credit lending practices which have caused a drop in the amount of subprime loans on devices that the company issued for EIPs and leases. T-Mobile, however, has taken a somewhat different approach to how they handle customers with credit that may not be the greatest, but that are making timely payments. The company has a plan called “Smartphone Equality” that was recently launched in January. According to this plan, if a customer makes twelve on-time payments in a row, the company will extend their best pricing and finance options. This gives the customer the option of no money down, the ability to acquire the latest and greatest smartphone and no interest, all without a credit check. According to T-Mobile, customers who are considered subprime and pay twelve months without a lapse do much better than new customers with exemplary credit. One point of note, Verizon and AT&T do not provide details on customers and their credit worthiness. One could assume that they have similar standards.

As consumers in the United States navigate towards EIPs, it would seem that carriers are taking steps to keep an eye on their bottom line. This will make it more important than ever for customers to make sure their credit is in order when it comes time to sign-up with a new carrier. With margins becoming tighter and tighter for the carriers, we can expect to see them begin to crack down on subprime financing, requiring more money upfront or per month. So keep an eye on your credit and make sure it is in order you are looking to sign into an EIP as the carriers will be looking it over in greater detail.