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Does paying car insurance build your credit history?

Sometimes it can seem like your credit score takes into account pretty much everything you do with money, from your credit usage to the age of your credit, to your types of credit. With all of these factors, it's worth asking-does paying your car insurance build your credit history?

The short answer is no. There is no direct affect between car insurance and your credit, paying your insurance bill late or not at all could lead to debt collection reports. Debt collection reports do appear on your credit report (often for 7-10 years) and can be read by future lenders.

Credit's impact on car insurance

That said, your credit score can have an effect on your car insurance rate. According to various studies, people with lower credit scores tend to cost their insurance companies more money. Not surprisingly, insurance companies tend to charge higher rates to people with lower credit scores.

It's worth noting, though, that your credit score is just one of many factors that insurance companies use when determining your rate. They also look at your driving history, the claims on your history, and other factors when determining your score.

The effect of NOT paying your car insurance

It's also important to remember that, while paying your car insurance doesn't build your credit score, failing to do so will actually bring it down if your payments are turned over to a collection agency. This type of report stays on your credit report for about 7-10 years, but the effects to your report can vary depending on your overall financial picture.

If you are late with your car insurance, utility bills, or other payments, they may eventually go to collections. When that happens, it can make a negative mark on your credit score. That can affect how easily you qualify for loans, credit cards, and other credit products. It can also have an effect on your next car loan — something to keep in mind if you think you might be in the market for a new car soon!