Does Paying Car Insurance Affect Credit?

If you’re like most people you probably have a car and you likely have car insurance because it’s illegal to drive without it. So, does paying your car insurance build credit? We will answer this question in more detail below.

Does Paying Car Insurance Build Credit?

No, paying car insurance does not build credit because your monthly car insurance payments are not reported to the credit reporting bureaus. So, although paying car insurance may seem like it builds credit, it does not. Making your payments on time or failing to make them will have no impact on your credit score.

That said, although paying car insurance does not build credit if you fail to make your car insurance payments on time, the money that you owe your insurance provider could be sold to a collection agency. The collection agency can cause extensive damage to your credit by adding a collection account to your credit report.

A single collection account can drop your credit score by 100 or more points. The better your credit, the bigger the drop will be. If a collection account is added to your credit report, it will remain on your credit report for 7 years from the date you missed your insurance payment. So long as a collection account appears on your credit report, it will drag down your credit score until it’s ultimately removed after 7 years.

Paying your car insurance with a credit card and paying off your credit card on time can help you indirectly build good credit. This is so because your payment history, and not your insurance payments, account for 35% of your credit score. So, when you use your credit card responsibly and make timely payments, this will build your credit. Just make sure to make your payments on time as missing even a single payment on your credit card could cause significant damage to your credit.

Does Paying Car Insurance Late Affect Credit?

No, making a late car insurance payment does not affect your credit because car insurance payments are not reported to the credit reporting bureaus. So, whether you make your payments, pay them late, or fail to make them, such actions do not affect your credit. However, if your insurance provider sells the outstanding amount due to a collection agency, your credit can be affected if a collections account is added to your credit report. This is so because collection accounts are derogatory and their addition to your credit report can significantly lower your credit score.

Why Doesn’t Paying Car Insurance Build Credit?

Paying car insurance does not build credit because your insurance payments are not reported to the credit bureaus. Since your payments are reported, they are not factored into your credit score. So, whether you make all of your car insurance payments on time or fail to make any of them, there will be no direct impact on your credit score.

However, if you fail to pay your car insurance payments, there may be an indirect impact on your credit score in the event that your car insurance provider sells the outstanding amount that due to a collection agency, causing a collection account to appear on your credit report.

A collection account is a negative item that can cause a significant drop in your credit score, so it’s best to avoid it to maintain good credit.

Does Missing a Car Insurance Payment Affect Your Credit?

No, missing a car insurance payment will not directly affect your credit score because payments are not reported to the credit reporting bureaus. However, if you miss several payments, your car insurance provider may sell the outstanding amount that’s due to a collection agency. The collection agency can then cause significant damage to your credit by adding a collection account to your credit report. A single collection account can drop your credit score by 100 or more points. So, to avoid a collection account from damaging your credit, you should make all of your insurance payments on time. In addition to a collection account being added to your credit report, failing to make car insurance payments can result in the cancellation of your car insurance policy and the assessment of late fees.

Can You Use a Credit Card To Make Insurance Payments?

Yes, most insurance providers allow you to use a credit card to make your insurance payments. That said, some insurance providers may charge you a convenience fee for using a credit card. To avoid paying the convenience fee, you should use a checking account or debit card to pay your insurance. That said, most major insurance providers allow you to pay insurance using a credit card with no added fee.

Does Paying Car Insurance With a Credit Card Build Credit?

Paying car insurance with a credit card can help you build credit. For example, if you use a credit card to make your car insurance payments and you make your credit card payments on time, you will build good credit because you’re establishing a positive payment history for the account. That said, it’s not the fact that you’re making your insurance payment that’s boosting your credit, but rather the fact that you’re using your credit card and making timely payments on your card that helps your credit score.

However, if you use your credit card to pay your insurance premiums, and you fail to make your credit card payment on time, you can cause significant damage to your credit as a late payment mark will be added to your credit report, significantly lowering your credit score. If a late payment is reported on your credit report, it will remain on your credit report for 7 years. After the 7 year period, the late payment mark will automatically be removed from your credit report. Clothing an account with a late payment will not remove the mark from your credit report. So, make sure to make your credit card payments on time regardless of whether you’re using them to pay insurance.

The Bottom Line

Paying car insurance does not help nor does it impact your credit because insurance providers do not report your payments to the credit reporting bureaus. So, whether you make your payments or fail to make them, it will not directly impact your credit. However, there is one situation where failing to pay insurance premiums could damage your credit. If you fail to make enough insurance payments, your insurance provider may sell the outstanding debt to a collection agency that can damage your credit by adding a collection account to your credit report while collecting the outstanding money that you owe. So, to avoid damage to your credit, you should make your premium payments on time.

Frequently Asked Questions (FAQs)

1. Does paying auto insurance build credit?

No, paying auto insurance does not build credit because auto insurance payments are not reported to the credit reporting bureaus. As such, making or failing to make auto insurance payments has no impact on your credit.

2. Does missing my auto insurance payment hurt my credit?

No, missing an auto insurance payment does not hurt your credit because auto insurance payments are not reported to the credit bureaus. However, if your account goes to collections, a collection account can be added to your credit report, significantly lowering your credit score.

3. How many points can a collection account lower my credit score?

A single collection account can lower your credit score by 100 or more points. The higher your credit score, the bigger the drop will be.

4. Does paying monthly auto insurance help my credit score?

No, paying monthly auto insurance will not help your credit score because auto insurance payments are not reported to the credit reporting bureaus. Therefore, paying your car insurance will not improve your credit.