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In most cases, your car insurance payments won't impact your credit, but it's not cut and dried. Here's what you need to know about how you can get credit for on-time premium payments while also avoiding the potential damage of missing one.
Does Paying Car Insurance Build Credit?
Car insurance companies don't report your premium payments to the credit bureaus, so your policy won't appear on your credit reports. That said, you can get credit for on-time auto insurance payments on your Experian credit report by adding your insurance bills to Experian Boost®ø.
Experian Boost is a free feature that allows you to add certain monthly bills, including eligible utility, internet, streaming, rent, insurance and other payments, to your Experian credit file. Adding these on-time payments could help improve your FICO® Score☉ based on your Experian credit report.
Does Not Paying Car Insurance Affect Your Credit?
Just as on-time payments don't get reported to the credit bureaus, the same is true for not paying your policy premium.
That said, an insurance agency may send an unpaid premium to collections if it fails to collect payment on its own. At that point, the collection agency can report the debt to the credit bureaus, ultimately hurting your credit score.
What Happens if You Don't Pay Your Insurance Bill?
If you miss an auto insurance payment, insurers typically offer a grace period before canceling your policy. Depending on the insurer and your state of residence, this period can be as long as 30 days.
Your insurance company will notify you 10 to 20 days by mail or email before canceling your policy. If you can't pay and don't cancel the policy on your own, the policy will lapse, resulting in several potential consequences, including:
- You'll no longer have protection. You won't have any financial protection in the event that you get in an accident or your vehicle sustains damage or other losses. If you cause an accident without sufficient insurance coverage, the other party could sue you.
- You may be in violation of the law. State laws require that you maintain at least a minimum amount of liability coverage. If you fail to meet that requirement, you could face fines and a suspension of your driver's license.
- Getting new coverage can be difficult and expensive. Going a single day without car insurance can result in a higher rate on a new policy. What's more, if your state requires you to obtain an SR-22 form to prove you have the minimum amount of liability coverage (usually if you've run into trouble or were caught driving without insurance), some insurers may not even be willing to offer you a policy. If they do, it can get even more expensive.
- Your vehicle may be repossessed. If you have an outstanding auto loan or lease on your vehicle, your lender likely requires that you maintain both collision and comprehensive coverage. Once the insurer cancels your policy, it'll typically send a letter to your lender. If you don't replace your coverage, you'll be in violation of your loan or lease agreement, and the lender has the right to repossess the vehicle.
Does Canceling Car Insurance Affect Your Credit?
As long as you don't have any unpaid premiums that could be sent to collections, canceling your auto insurance policy won't have any impact on your credit score.
However, you may be subject to the other consequences mentioned above if you don't replace the canceled policy with a new one. Even if you're selling your car with no plans to buy a new one, it's recommended that you obtain non-owner car insurance to avoid potential rate increases in the future due to not having continuous coverage.
Does Your Credit Affect Your Insurance Rates?
According to the National Association of Insurance Commissioners, 95% of auto insurance carriers use what's called a credit-based insurance score to calculate premiums in states where the practice is allowed.
The score is based on your credit history but isn't the same as the traditional FICO® Score that lenders use, though it considers many of the same factors.
States that prohibit or limit the practice of using credit information in insurance include California, Hawaii, Maryland, Michigan and Massachusetts. Additionally, Utah and Oregon have prohibited using credit histories for setting rates in certain situations.
Even in states where there aren't such limitations, insurance companies typically can't use a credit-based insurance score as the sole basis for increasing rates or for denying, canceling or refusing to renew a policy. So, while a low credit score alone may not be enough to cause a premium hike, it can have that effect if there are other factors at play.
The Bottom Line
While auto insurance companies don't report on-time payments to the credit bureaus, you could get credit for your premiums with Experian Boost. If you've missed an auto insurance premium, it's important to pay the bill as quickly as possible or reach out to your insurer to avoid having the bill sent to collections.
At the same time, it's important to build and maintain a good credit history to take advantage of lower rates on your auto insurance. Check your credit score and review your credit report to evaluate your credit health and determine whether you can make improvements.