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Does paying for car insurance build credit?

The lowdown...
  • When you buy auto insurance, the insurance company may check your credit file to determine how much you should pay for your coverage
  • The insurer doesn’t use your credit score but they will use a credit-based insurance score that uses information from your credit report to estimate risk
  • When you make auto insurance payments, the payments that you make aren’t reported to any of the three credit rating bureaus
  • Being late on your insurance payments won’t show up on your credit or affect your credit score. While your score doesn’t go down, being late on your insurance can lead to a lapse in coverage
  • If you want to make payments and build your credit at the same time, you may consider paying your premiums with a credit card and then paying the credit card balance down before you’re billed so that you’re not charged interest

Building your credit takes time and money. A good credit score shows that you’re a financially responsible consumer who can be trusted to pay their debts.

One of the quickest ways to build credit is to apply for a secured credit card. You can also apply for an unsecured card with a low limit that will grow over time or an auto loan on a new or used car.

Enter your zip code above to see how your credit affects your car insurance rates!

Paying down your balances on lines of credit and loans will certainly help to raise your score. Unfortunately, the monthly payments that you make to stay current with service providers won’t necessarily help you build a good reputation with the credit bureaus.

Credit can affect your insurance but your insurance doesn’t really affect your credit. Here’s what you need to know as a car insurance consumer:

Are your auto insurance premium payments reported to the credit bureaus?

Creditors and debt collectors report financial transactions and defaults to one of three different credit bureaus. As most people know, late payments that are reported to your credit file are bad for your score. What you might not know is that not all late payments drive your score down.

Typically, being 30 or 60 days late once or twice won’t have a lasting impact on your credit file. Luckily, if you’re late on your car insurance payments you don’t have to worry at all because the payments that you make aren’t reported on your credit.

Since you’re paying for a service and not borrowing money, the payments made don’t directly help or hinder your mission to build your credit.

Can your credit affect your auto insurance?

 

Making payments to keep your premiums active won’t impact your credit but that doesn’t mean that your credit won’t impact your auto insurance.

When you’re buying insurance coverage in most states, the carrier can legally use your credit information to determine if you’re a high-risk driver. In California and Hawaii, reviewing credit is prohibited.

Why does credit affect your insurance premiums?

In states where using credit is allowed, carriers will access your credit file and use a special score to assess how likely you are to file a claim.

While it is not true for every applicant, the trends show that someone who have poor credit and late payments are in a financial position where they are more likely to file a claim when they have a loss.

People with good to excellent credit may pay for the damage out of pocket to avoid a rate increase. This is why state officials in most states have deemed that checking credit is not a discriminatory practice. What many people don’t understand is that insurance companies don’t check your traditional credit report.

What type of credit information does the carrier look at to calculate your rates?

Insurance companies don’t pull up your credit report and use your FICO score when they’re processing your insurance application. Instead, they will order a credit-based insurance score through a third-party agency like FICO or LexisNexis that determines if you’re high-risk as far as car insurance is concerned.

Credit-based insurance scores, also referred to as insurance scores, are calculated by using several different aspects of your credit file.

Some of the areas that can impact your insurance score and ultimately your rates include:

  • What type of credit accounts you have in your file
  • How many delinquent payments you have reported on file
  • How long you’ve had credit
  • Payment history
  • How much outstanding debt that you have
  • Pursuit of new credit accounts

How often do insurance companies check your credit information?

You can improve your insurance score just like you can improve your traditional credit score. It will take time to catch up on your payments, establish more of a credit history, and lower your account balances, but if you take the right steps your score will improve.

Insurance companies can review your most current insurance score each renewal. Since renewals occur once every six months or once every year, it’s possible that your insurance score could be updated often.

Since it costs money to run the report, many carriers will only run your report once every couple renewals to keep the costs down.

Is it possible to build your credit by paying for your auto insurance?

 

If you pay your premiums with cash, debit, or check, it won’t help you rebuild your credit file.

Luckily, if you’re financially savvy you can make paying for your recurring bills help you build your credit. One way to do this is to use your credit card to pay your premiums. Paying your premiums monthly is what will help you build long lasting credit.

By using your credit card to pay your premiums each month, you can establish that you’re financially responsible in the eyes of the creditor.

It’s best to pay the charge off before the next bill is printed so that you don’t get stuck paying interest. This helps to keep your balance down but also helps to show that you can keep your account current.

Credit affects your car insurance but paying your car insurance isn’t reported to your file. With this being said, you can use your credit to pay down your premiums and establish a reputation that shows that you have the ability to pay. If you are looking for affordable insurance, start to shop around now.

Use an online rate comparison tool to price the cost of coverage and build credit by using your credit card to activate your policy.

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