Does paying for car insurance build credit?

No, simply paying for car insurance doesn't help you build credit. However, if you pay your monthly car insurance premiums on time and with your credit card, you could improve your credit score. You might think that paying for your car insurance every month affects your credit in the same way as paying other recurring bills. In most cases, paying for car insurance doesn't help build credit. This is mainly because car insurance is not an installment loan, so it is not reported to major credit agencies.

Paying car insurance bills on time usually doesn't improve your credit. However, non-payment can cause your creditworthiness to decrease. Make sure you pay your car insurance bills in full and on time to prevent your credit from being adversely affected. Running out of your credit card limit reflects poorly on you as a borrower and could make insurers consider you riskier.

Do some research and find out if your insurance provider offers a use-based car insurance program, which could reward you for driving safely. Applying for a personal loan (and then paying it back in full in a responsible manner) can be one way to increase your credit. If you are significantly late paying for car insurance and your account is used for collections, this can negatively affect your credit rating. Some insurers have grace periods for late payments, so they won't cancel your coverage right away after a missed billing period. While not paying for your car insurance won't affect your credit, it could affect the amount you pay for car insurance.

Every car insurance policy is different, so check with your agent to make sure you understand how your particular policy works. When it comes to how car insurance payments can affect your credit rating, consider your credit utilization ratio. Credit scoring is the starting point for lenders, such as banks, to determine how likely you are to pay back a loan (such as a mortgage or credit card bill). If your insurance agency sends your account to a debt collection agency, this could have a negative impact on your credit rating. Get up to date with CNBC Select's comprehensive coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to keep up to date.

However, the main consequence of not paying for car insurance is that you may not have coverage in the event of an accident. Open a separate bank account only for your monthly bill payments, so you don't end up spending the money in your bill on other expenses. As you research usage-based insurance programs, keep an eye out for other discounts your insurance provider may offer you. As with many financial products, having a good credit score can help you pay lower monthly premiums for car insurance.

The final premium of any insurance policy is determined by the insurance company after the request.

Elizabeth Unch
Elizabeth Unch

Amateur social media expert. Extreme pop culture lover. Proud coffee lover. Certified coffeeaholic. Lifelong food ninja. Hipster-friendly food specialist.