Does paying car insurance build credit?

It might feel like every recurring payment you make has the potential to affect your credit score. But your car insurance might not necessarily be one of them.

This doesn’t mean your credit score and car insurance aren’t related. If you’re paying for coverage with a credit card, making your card payments on time and in full may indirectly build credit. Car insurance companies may also use your credit score as a factor when determining your rate. If you have a good credit score, you could end up receiving a better rate than someone with a lower credit score.

Making payments for car insurance won’t affect your credit score. But if you pay with a credit card, things like your card’s balance or late payments could be reported to the credit bureaus.  

And most major insurers do accept credit cards as a form of payment. Just remember that using your credit card responsibly is what ultimately has a positive impact on your score.

Before you commit to paying your car insurance with a credit card, check to see whether your insurer charges a processing or convenience fee. 

You may also want to explore your options for how often payments can be made. Many insurers let you make payments monthly, biannually or annually. If you pay your car insurance annually, you might be able to avoid processing fees. While if you pay monthly, those fees can add up. 

When it comes to how car insurance payments can affect your credit score, be mindful of your credit utilization ratio. That’s simply a measurement of how much of your available credit is currently in use.  

The Consumer Financial Protection Bureau (CFPB) recommends keeping your credit utilization ratio under 30%. So if paying your car insurance with a credit card puts the total amount of credit you’re using over the 30% mark, you may want to consider another payment method.

You’ll also want to make sure you make your credit card payments on time. As the CFPB explains, your payment history is an important part of your credit score. And missed or late credit card payments can not only affect your credit—they can lead to late fees and interest rate increases, too.

Regardless of whether you’re paying with a credit card, missing a car insurance payment can have consequences. 

Depending on your insurer’s policy, missed payments may 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. 

Worried about a missed car insurance payment directly affecting your credit score? Generally, there’s no need to be. Car insurance companies aren’t extending credit when they charge premiums, so they typically don’t report your payment history to credit bureaus. 

However, if you fail to pay your insurer, they may be able to turn the debt you owe them over to a collection agency. And the collection agency may report that debt to the credit bureaus.

Making your car insurance payments on time and in full is important, whatever payment method you choose. 

Remember, you won’t build credit just by making your car insurance payments. But using a credit card to pay your insurance premiums can have an indirect impact. That’s because the responsible use of your credit card could have a positive effect on your credit score. 

There are also ways to build your credit, even without a credit card. Becoming an authorized user on the credit card account of a trusted family member or friend is one option. Just keep in mind that negative actions by either of you—for example, making late payments—could hurt both of your credit. Applying and using credit builder loans responsibly can be another way to build credit.

A good way to stay on target with your credit score goals is to monitor your credit. With CreditWise from Capital One, you can check your credit score for free, at any time, without hurting your score. The best part? You don’t even have to be a Capital One customer to use it.