Will paying for car insurance build credit?

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Here's what you need to know...

  • There are plenty of good reasons to establish a history of paying your car insurance premiums on time, but it is unlikely to have a direct impact on your credit score
  • Your credit history can come into play as a factor that auto insurance companies evaluate when determining the price of your premium
  • If you fail to pay your auto insurance premiums on time, the auto insurance company could cancel your policy before the end of your policy term, which could make it more difficult for you to find insurance down the line
  • If you have a history of consistently paying your premiums, this could earn you a discount or lower premium over time from your auto insurance company

The likelihood of you getting a better rate on your auto insurance premium is much higher if you have a good credit score.

Your credit score is one of the many factors that are considered in determining what rate you will pay for your auto insurance. While paying your auto insurance premiums on time will not necessarily result in a direct boost to your credit score, it will help keep your auto insurance auto insurance premiums as low as possible.

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The Importance of Having Good Credit

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When your auto insurance company gives you a quote on a rate they are also evaluating the particular risk that you pose as a driver to insure.

Every auto insurance company has a different way of calculating that risk, which is why it is smart to get quotes from multiple auto insurance companies when you are shopping around for auto insurance.

You may do much better with one company versus another for your auto insurance rate simply because a certain factor is weighted differently in their risk evaluation of you as a driver.

One of the major factors that auto insurance companies consider when quoting you for a rate is your credit score. There is a strong correlation between being a financially responsible consumer and being a safer driver.

Chances are that if you have a good credit score, then you will be less likely to get into an accident and file a claim through your auto insurance policy. This makes you cheaper to insurance and explains why an auto insurance company would quote you at a lower rate than another driver with a lower credit score.

One thing that determines your credit score is whether you pay your bills on time over several years. While it may seem logical that your auto insurance premium is one of those bills that would get reported on your credit score, this is typically not the case.

The reason for this is that an auto insurance can simply choose not to cover you or refuse to renew your policy if you do not pay your premiums on time.

Remember that your credit score is not really based on the amount of money that you make. Rather, it is meant to evaluate your ability to manage your finances responsibly, which involves paying your bills on time.

When you do not pay your required auto insurance premium, you will likely have your policy canceled by your auto insurance rather than having a report filed against you with any credit reporting agencies.

This is why the answer is that paying your auto insurance premium is not going to have a direct impact on your credit score.

If your auto insurance policy is canceled due to your failure to pay your premium, this information will show up in your insurance report and could be handed over to your state department of insurance. This is because many states require that auto insurance provide official notice when a registered driver changes auto insurance companies or stops carrying an auto insurance policy.

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You will need to act quickly to find alternate auto insurance coverage if your company cancels you for failure to timely pay your auto insurance premiums.

However, maintaining the required auto insurance liability policy under your state laws is an important requirement to meet to be able to drive in your state.

If you are pulled over by a police officer or are involved in an accident and cannot produce current and valid proof of auto insurance, then you will likely be hit with major fines and various penalties, depending on the laws of your state.

If you do not pay the required fines and the government takes action against you, this could eventually have a negative impact on your credit score. The consequences of failing to maintain your auto insurance coverage and pay for it as required can be very costly and time-consuming to bounce back from.

Ways to Make Sure that You are Getting the Lowest Premium Possible on Your Auto Insurance

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Since paying your auto insurance premium is necessary for being able to maintain the required auto insurance in your state, it makes sense to try to pay as little as possible for sufficient auto insurance coverage for you.

If you are hoping to get the lowest premium possible on your auto insurance, you should ask your auto insurance directly about discounts that may be available to you.

In addition to trying to get as deep of a discount as possible, consider installing anti-theft devices on your car or signing up for driver safety courses if your auto insurance company tells you that those things could make a difference in reducing your premium.

Every auto insurance company offers discounts differently, so it is always best to check with your specific auto insurance company before investing any money in the hopes of getting a major discount on your auto insurance premium.

Building Your Credit and Paying Your Auto Insurance Premiums

Just because a history of paying your auto insurance premiums on time does not directly translate to a higher credit score, it is still legally required of you in order to maintain insurance and meet state requirements. The bigger impact on your credit score would be if you chose to not pay your auto insurance premiums and then were caught driving without insurance.

If you receive judgments against you and are not able to take care of your financial responsibilities, your credit score will take a major hit. Having a good credit score is one of the ways that you can expect to pay less for your auto insurance premium because it shows that you are likely more responsible and a lower risk driver.

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