Does Paying for Insurance Build Credit?

Not all of your bills affect your credit score. The only payments that regularly appear on your credit report are those in which you borrow money and are paying it back. Because insurance is a service, not a loan, paying your insurance premiums will generally not build your credit history.

Payments Not Reported

In order for payments to affect your credit score, the company you are making payments to must report these to the credit reporting bureaus. Once the payment history appears on your credit report, the credit score formulas consider this data when providing information to lenders. Insurance companies do not generally report any payments to the credit bureaus, so these payments can't help build your credit.

Negative Credit Effects

Although paying your insurance does not generally help your credit, it can hurt your credit if you fail to make your insurance payments as agreed. If you are severely late, the insurance company might turn the debt over to a collection agency, which will report it to the credit burueau, and the credit bureau adds it to your credit report. This will lower your credit score, even if you pay it off later.

Using Credit Card

One way to help build your credit is to put your insurance premiums on your credit card and pay the card off. Your credit card company will report payments to the credit bureaus. Light credit card use and timely payments demonstrate you can responsibly borrow and pay back money. However, you should try to keep your credit card balance low relative to your credit limit. This percentage is called credit utilization and plays a significant role in the credit score formula. MSN Money columnist Liz Weston recommends keeping your credit card balance below 30 percent of your credit limit to maintain a high credit score, although she notes that credit utilization of 10 percent is even better.

Credit Affects Insurance

Even though making insurance payments does not build your credit score, having good credit does help you when it comes to car insurance. Many insurance companies check your credit to help determine the premiums to charge you, because they have found that people with bad credit make more car insurance claims than people with good credit. If a car insurance company charges you extra or denies coverage because you have bad credit, it must notify you in writing and provide instructions on how to view your credit report.