Does Not Paying Your Car Insurance Premium Impact Your Credit Score?

Simply missing car insurance payments shouldn’t affect your credit score, but debts that go to collection agencies certainly can.
Written by Cameron Thiessen
Reviewed by Jessa Claeys
Not paying your car insurance premium will not directly impact your credit score. However, if you owe debts to a car insurance company and do not pay them, these debts may be turned over to a collection agency. Debts that go to collections will negatively affect your credit score.
Worried about how late payments might affect your credit score? For the most part, you don’t need to be, unless your missed payments are turned over to a collection agency.
We’ll go over how
car insurance
payments and credit scores are related and clear up any confusion surrounding whether or not making insurance payments can build credit. Then, we’ll talk about practical ways that you can build a better credit rating.

Does not paying your car insurance premium impact your credit score?

No. Your car insurance payment history will only impact your credit score if you leave your debts unpaid for long enough that they go to collections.
The main thing to understand here is that auto insurance companies do not report to credit bureaus, so your missed car insurance payments will not directly affect your credit score. This is because insurance companies are not providing credit.
In the same way, making car insurance payments does not help build credit, because insurance companies do not lend credit.
The detriment of late payments will be incurring late fees that will show up as unpaid debt down the road if not addressed. If you’re on monthly payment plans, missed payments may also result in interest rate increases.
Just keep in mind that if you are paying for insurance with a credit card and failing to make credit card payments, it will affect your credit score.
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Do car insurance companies look at your credit rating?

Yes, most insurance companies in the U.S. will consider your credit score when assessing your insurance score. In fact, the majority of car insurance providers use what’s referred to as a credit-based insurance score. Thus, worse credit generally leads to higher premiums.
While it’s not the only thing that will impact your auto insurance rates, your credit score certainly will affect them. Other things that affect your insurance rates include past insurance claims, your driving history, the vehicle you drive, where you live, and how your vehicle is being used, just to name a few.
That being said, in general, a better credit score should reduce your car insurance rates to some extent. One exception to this rule is if you live in
California
, Hawaii,
Massachusetts
, or
Michigan
. These states have all banned the practice of checking credit scores to determine car insurance pricing.

Does getting car insurance quotes affect your credit?

No, getting car insurance quotes from multiple companies will not impact your credit score. While many companies check your credit during the quote process, they use what’s called a soft pull to do so. Only hard pulls show up on your credit report.
Comparing quotes is the best way to find better-priced insurance without sacrificing coverage. So, go get those quotes!

How to improve your credit score

First off, you need to understand that improving your lower credit score is a long-term commitment. It takes time and consistency to reverse bad credit. But don’t let that get you down! There’s no better time than now to start making changes to build better credit.
If you’ve ended up falling into a bad credit rating, here are some practical things that you can do to start building it back.
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Pay credit bills on time

Making on-time payments on all credit accounts that you have open is the most effective way to build good credit. This requires significant commitment and may mean unlearning some bad habits that have held you back in the past.

Limit your credit usage and pay strategically

The rule of thumb is to keep credit usage below 30% of your limit. If you can pay multiple times over the course of a billing cycle, you’ll make sure that your credit utilization is reported at a lower number when your creditor reports your usage to bureaus.
The three credit bureaus in the U.S. are Experian, Equifax, and Transunion. Maintaining low credit utilization is the second most significant factor in building good credit.
MORE: Does refinancing a car hurt your credit score?

Ask for higher credit limits

This is a double-edged sword because a higher credit limit also means the possibility of going into even more debt if you can’t resist the temptation to use the extra credit you’re granted.
However, if you’re responsible enough to reel yourself in, a higher credit limit will make it easier to stay below 30% credit utilization.

Review your annual credit reports

Just looking at your score can give you an idea of how bad things are, but going through your credit reports will reveal the things that are contributing the most to your negative score.
You can check your credit reports for free online by visiting
AnnualCreditReport.com
. You can also request your free credit report by calling 1-877-322-8228.
Or, you can complete an
Annual Credit Report Request Form
and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
This is not the same thing as checking your credit score. Your credit report simply allows you to see the status of all unpaid debts so that you know who and what you need to pay to get into better credit standing.
You may also find inaccuracies, or worse, signs of fraud or identity theft. The Federal Trade Commission has reported that 25% of U.S. consumers had errors in their credit reports. Addressing these things and clearing them up could improve things significantly.

Pay off old debts

Old debts will have a major impact on your credit, so the sooner that you can get around to paying off debts that have gone to collections, the sooner you’ll be able to start consistently building good credit.

Keep old accounts open and refrain from opening new credit accounts

Applying for a credit limit increase on an account that you already have open will help you build better credit, but be careful about opening new accounts. Applying for an entirely new line of credit will usually result in a negative hit to your credit score.
On the flip side, keeping old accounts open, even if you don’t use them anymore, will help you to maintain the length of your credit history. Plus, having an account open that has low utilization will ultimately help improve a low credit score if you’re able to keep it that way.

Seek credit counseling

If you’re finding it impossible to keep up with your bills, you’re not alone! Total American household debt increased by $2 trillion since the end of 2019, and approximately 30% of Americans saw their credit scores worsen over that time.
While it’s not the best option for everyone, credit counseling can offer you personalized aid in rebuilding your credit. The
National Foundation for Credit Counseling
is a great resource for finding non-profit credit counseling services.
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FAQs

Yes, most providers will let you pay your auto insurance premium with a credit card. Just remember that if you choose to do this, it will affect your credit score—for better or worse.
In most cases, no, your car insurance policy will not affect your credit score. The two exceptions to this rule are if you are paying for insurance with a credit card or if your insurance debts are turned over to a collection agency. In each of these cases, your car insurance will have indirectly impacted your credit score.
No, car insurance payments will not help build your credit—unless you’re using a credit card to pay your premiums, making payments on time consistently, and keeping your credit utilization low.
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