Does paying auto insurance build credit?

Paying auto insurance will not build credit, but paying on time will keep your rates from increasing. Some auto insurance companies do look at your credit score to assess your risk level, so it's important to maintain a strong credit score.

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Written by Rachel Bodine
Insurance Feature Writer Rachel Bodine

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Apr 27, 2022

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You may have heard people tell you to borrow money to grow your credit score. Does car insurance count towards your credit score? Will paying your car insurance bills improve your credit?

Today, we’re explaining everything you need to know about whether or not paying car insurance builds your credit.

Does car insurance build credit?

So, does paying for insurance build credit? Paying everyday bills for things like rent, utilities, and car insurance will not typically build your credit score.

Insurance companies bill in advance of providing coverage, which means they’re not technically lending you money: there’s no risk of loss at their end, which is why carriers do not report positive or negative information to credit bureaus.

Even when you set up a monthly payment schedule with your car insurance company, you’re being billed in advance: you’re not borrowing any money from your car insurance company. There is no ‘credit’ being given to the driver.

Unfortunately, the same cannot be said for when you miss a payment. If you do not pay your bills on time, then your credit score could take a hit. If you miss a car insurance payment, however, then your credit score will not typically fall; instead, your car insurance policy will just be canceled after a 10 or 20-day grace period without payment.

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Do insurance companies review your credit score?

Car insurance payments are not likely to affect your credit score. However, your car insurance company may check your credit score prior to giving you an insurance policy.

Car insurance companies check your credit score during the underwriting process. They use a specific number called your credit-based insurance score, which functions in a similar way to a credit score. Based on this number, your premiums could rise or fall.

Someone with a good (high) credit score will have a strong credit-based insurance score, which means they’ll pay lower premiums. Someone with a bad (low) credit score will have a weak credit-based insurance score, which means they’ll pay higher premiums.

There’s a reason car insurance companies check your credit score: drivers with low credit scores tend to make more claims than drivers with high credit scores.

Not all companies check your credit prior to opening a car insurance policy.

It’s also important to note that if a car insurance company does check your credit score, then they’ll likely just perform a soft inquiry. A soft inquiry is not the same as an ordinary credit inquiry. It will not impact your credit score.

Will unpaid car insurance premiums affect my credit?

What happens if you fail to pay your car insurance premiums? What happens if your payment is late or if you skipped on a payment? Will this affect your credit score?

Typically, unpaid car insurance premiums do not go to a collections agency, nor do they appear on your credit score or consumer report. Instead, most car insurance companies simply cancel your policy after a 10-day or 20-day grace period.

Once your policy is outside of this grace period, you no longer have car insurance coverage. Your carrier will not cover any accidents, nor are you legally allowed to drive.

Lapsed car insurance can have a severe impact on your credit score. Even if your unpaid premiums do not appear on your credit score, your lapsed car insurance can lead to serious issues:

If you get into an accident, then you may be forced to pay for repairs out of pocket; if you cannot afford to pay a mechanic to repair your vehicle, then you may be hit with a mechanic lien, and this lien could appear on your consumer report if you fail to pay the bill

If you injure another driver, passenger, or pedestrian, then you may be forced to pay the medical bills, lost income, and other damages suffered by the injured party; these payments could leave you in debt, and your debt could drag down your credit score

If you fail to maintain car insurance on a vehicle that isn’t fully paid for, then your vehicle may be repossessed; dealerships require full coverage car insurance on any vehicles that are being leased or financed.

What’s the bottom line?

Car insurance is a monthly bill that must be paid on time. However, unlike certain other bills – like a credit card bill – car insurance payments will not build your credit score. Your carrier is charging you in advance for your car insurance policy: you’re not borrowing money from your car insurance carrier. Even if you make monthly payments, this is not considered a form of credit.

However, drivers who fail to make timely payments on their car insurance may have their policies canceled after a 10 or 20-day grace period. Missing payments will not affect your credit score, but the consequences of driving without car insurance could severely impact your credit score.

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