Does Paying My Car Insurance in Full Raise My Credit Score?

Many car insurance providers give you the option of paying for your six-month policy up-front or paying it in monthly installments. Unless you borrow money to pay your car insurance or are severely delinquent on your bills, your car insurance payments will never affect your credit score, regardless of how frequently you make them.

Credit Score Components

The only types of accounts that affect your credit score are those on which you are repaying money you borrowed. Lenders of these types of accounts report your payment history to credit bureaus, which each maintain a credit report that compiles all of your account information. Your credit score is based on the information on your credit report. Common accounts that appear on your credit report include mortgages, home equity loans, auto loans, student loans, personal loans, major credit cards, retail credit cards and charge cards. In addition, accounts that have been sent to collection agencies, such as old unpaid utility bills or medical bills, can also affect your credit score.

Car Insurance Payments

When you get a car insurance policy, you are not borrowing money from a lender. Instead, you are paying for a service. Therefore, insurance companies generally do not report your payment history to credit bureaus and the payments do not affect your credit score. If you are very late on your car insurance payments, the company will probably cancel your policy and send the account to a collection agency to get the past-due premiums. In this case, the collection account will appear on your credit report and damage your credit score.

Paying With Credit

If you use a credit card to pay your car insurance bill in full, it can affect your credit score. However, it will lower your credit score, not raise it. This is because the credit score calculation considers your utilization ratio, which is your credit card balance divided by the credit card limit. The higher your utilization, the lower your credit score will get. For example, if you have a credit card with a limit of $2,000 and a balance of $300, you are using 15 percent of your available credit, which is not hurting your credit score. However, if you use the card to pay your car insurance premium of $1,400, your balance jumps to $1,700, which is 85 percent of your available credit. This high utilization will lower your credit score until you pay down the balance.

Benefits of Paying in Full

Although paying your car insurance in full will not affect your credit score, it does have other potential benefits. Some car insurance companies give you a discount for paying the full six-month premium up-front. This discount can make the car insurance more affordable. Another benefit is that you do not have to worry about remembering to make monthly payments and being charged late fees or having your policy canceled for nonpayment.