There's no direct effect between car insurance and your credit, so paying your insurance bill late or not paying it at all could result in debt collection reports. Debt collection reports do appear on your credit report (usually 7 to 10 years) and can be read by future lenders. Insurance companies do not provide information about their premium payments or their claims (or non-payment of them) to national credit agencies. However, some insurers use credit checks to help set your premiums, and if you don't pay insurance bills, you may have negative notes on your credit report.
Auto insurance payments don't build credit because auto insurance companies don't lend money. Credit scores are based on the content of TransUnion, Equifax and Experian credit reports, which document our history of lending and repaying money through loans and lines of credit. Because timely car insurance payments don't show up on credit reports, they won't help you build credit. Auto insurance companies have found that people who are less responsible with credit also tend to have more accidents.
Regardless of whether you're paying with a credit card, not paying for car insurance can have consequences. In addition, paying your car insurance bill on time is essential to avoid the potentially serious consequences of an insurance lapse. In addition, the impact of a below-average credit will affect drivers' auto insurance premiums much more in some states than in others. However, for most Americans, having bad credit or having no credit can cost you dearly to pay car insurance premiums.
While paying for car insurance doesn't build credit, your credit score does affect your car insurance rate. When it comes to how car insurance payments can affect your credit score, consider your credit utilization ratio. So, if when paying for car insurance with a credit card, the total amount of credit you're using exceeds 30%, you may want to consider another payment method. For example, according to a WalletHub study, people without credit pay an average of 67% more for car insurance than people with excellent credit histories across the country.
And even if you only have one credit card to pay car insurance premiums, making that type of regular purchase and then paying the bill on time and in full is enough to build up credit. There are some exceptions, as Hawaii, California, and Massachusetts don't allow credit history to affect car insurance. You can check your most recent TransUnion credit report for free on WalletHub to see for yourself that a history of car insurance payments is not included. You don't actually need to shop with a credit card to build up credit, but charging your car insurance premiums has the added benefit of keeping your active account.
Getting insurance quotes doesn't affect your credit score, so you can compare car insurance coverage as much as you want. Auto insurance companies don't provide credit when they charge premiums, so they don't usually report your payment history to credit agencies. The only way to use your car insurance payment to help increase your credit is to pay for it with a credit card.
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