Does paying car insurance build credit?

Credit bureau Experian says car insurance companies don’t report premium payments to the credit bureaus, which means paying your car insurance premium won’t typically help you build credit.

But that doesn’t mean there’s no relationship between credit scores and car insurance. Car insurance companies may use credit scores to help determine rates.

What you’ll learn:

• Car insurance payments don’t affect your credit scores, but your credit scores could impact premium rates.

• Missing or late car insurance payments typically don’t impact credit scores—unless they reach a point where the insurance company sends an unpaid premium to collections.

• Many auto insurance carriers accept premium payments via credit card.

• Anytime you use your card it can affect credit-scoring factors, such as your credit utilization ratio.

Car insurance premiums aren’t a type of loan, so paying them won’t help improve your credit score. 

When you request a quote, insurance companies use a soft inquiry, not a hard inquiry, to check your credit. This means shopping for car insurance and signing up for a new policy won’t negatively impact your credit.

Yes, your credit scores could affect your car insurance rates. Insurance companies in some states use a credit-based insurance score when you apply for a new policy or renew existing coverage. These specialty scores combine factors like your payment history and outstanding debt with information like your driving record and claims history. 

If you have a good credit score, you could qualify for a better rate than someone with a lower credit score.

Car insurance companies aren’t extending credit when they charge premiums, so they don’t typically report payment activity to credit bureaus. 

Falling behind on bills may feel uncomfortable. But in the case of car insurance payments, it won’t usually affect your credit scores. But that could change if you fall so far behind that the insurance company turns what you owe over to a collections agency. 

Depending on your insurer’s policy, missed payments may also result in late fees or policy cancellation. Some insurers don’t offer grace periods for missed payments, meaning you could lose your insurance if you don’t pay on time.

Many car insurers accept credit cards. And if you use your card to pay your premium, it could be an easy way to earn rewards or keep your card active. 

But first, it might be worth checking whether your insurance company charges extra to use a credit card. If that’s the case, using a check, debit card or ACH transfer might save you money.

Making car insurance payments using a credit card can affect your credit utilization ratio. That’s a comparison of how much credit you’re using to how much you have available. The Consumer Financial Protection Bureau recommends keeping credit utilization below 30%.

Using credit responsibly is one way to build credit. Car insurance payments could be involved indirectly if you’re using your credit card to pay premiums and then in turn paying your credit card statement on time every month. 

But there are other ways to build credit without a credit card, including:

• Pay other bills on time. If you’re self-reporting to credit bureaus, alternative data such as rent, utility and cellphone bill payments could show responsible use.

• Apply for credit-builder loans. If you have limited credit history, using a credit-builder loan responsibly can be another way to build credit. The loan works in reverse of typical loans. You build credit by making installment payments. Once the loan is repaid, you receive the money.

• Monitor your credit. It won’t help you improve your credit scores by itself, but monitoring your credit lets you know where you stand. And you can track your progress as you go. With CreditWise from Capital One, you can review your credit report and score for free—without hurting your scores.

Paying your car insurance premiums on time doesn’t typically have much effect on credit scores. But using a credit card to pay your insurance premiums can have an indirect impact if it’s part of using a credit card responsibly.

If you’re interested in using a credit card to build credit, you can compare options from Capital One and see if you’re pre-approved, with no impact to your credit scores.