Finances

Does paying car insurance help your credit score?

Paying bills is not funny, but it can be beneficial. Find out if paying your car insurance will keep not only your car safe but your score higher.

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Everybody wants a better credit score: learn if your car insurance can help you with that

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Learn if your car insurance can help you with your credit score. Source: Adobe Stock.

If you’re trying to improve your credit score, you wish everything you pay would help, even paying your car insurance. But is it a good strategy? What can really impact your credit score?

More than knowing if paying your car insurance will help, you should understand how your credit score works in the first place. With this piece of information, you can grow your credit score with efficiency.  

This post has all the answers you need for these questions. You’ll also get some useful tips to improve your credit, so read it until the end. 

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How does paying car insurance improve your score?

If you think you’re giving a boost to your credit score by paying your car insurance, we have some disappointing news for you. Unfortunately, paying for your car insurance does not build credit.

As car insurance is not exactly a credit line, it does not count on your credit report. You’ll need a credit card, loan, or other types of credit.

The credit bureaus use your credit reports to see how reliable and responsible you are. Remember that when a credit company gives you a line of credit, they’re trusting you. They give you a chance to borrow the money in exchange for the promise of paying it back.

So, your credit score will give you points for your creditworthiness. They’ll also take points away from you when you give signs of not being trustworthy.

Even if you wish really hard to build a credit score as fast as you can, paying your car insurance will not improve your credit score. So what will?

Can your car insurance impact your credit score someway?

Cars, coins and calculator
How is your car insurance impacting your credit score. Source: Adobe Stock.

It looks like everything impacts your credit score. So why wouldn’t your car insurance?

The only way your car insurance will directly impact your score is if you don’t pay it. And depending on your insurance company, they will only report your debt after a certain time.

Let’s say you delay your car insurance payment for just a few days, let’s say two or three. Unless your insurance company has a super efficient team in their financial resources sector. Then maybe they’ll instantly report this debt to the three major credit bureaus, and it will take you a feel points. It is unlikely, but it is possible. 

But you don’t want to take this risk. You have to pay all of your bills on time, always. This is basic for your personal budget. 

A way to use your car insurance to build credit is by paying it with your credit card. If you have a good credit card, plan to pay everything you can with it. This is an excellent strategy to easily build credit.

Understand how your credit score work

But why paying your car insurance will not positively impact your score if paying it late will damage it? Because that’s how credit score works.

Your credit score is made of the following factors:

  • Payment history, or your ability to pay your bills always on time: 35%
  • Your credit vs. debt ratio, which considers the amount of credit you have and how much of it you’re currently using: 30%
  • The length of your history with credit: 15%
  • How recent are your credit lines: 10%
  • Your credit diversification, or your credit portfolio: 10%

As you can see, it is not that simple. There are many aspects of your finances to take into consideration when it comes to building credit. 

If you really have the goal of achieving an excellent credit score, you have to think about how all of these different factors will compose together. Notice that each factor has a weight on your credit score, but don’t neglect any of them.

5 tips to improve your credit score

Credit Report with Score rating app on smartphone screen showing
5 simple tips to help you improve your credit score. Source: Adobe Stock.

Paying your car insurance on time will not improve your credit score. However, there are other ways to do it. We’ll give you some easy tips to improve your credit score and get the financial opportunities you’re looking for.

Get a credit card that fits your lifestyle and use it

There are plenty of credit cards for you to choose from. Some will have rewards, perks, and every kind of benefit. Some will cost hundreds of dollars, while some will cost nothing.

Making responsible use of a credit card is the top 1 tip for improving any credit score.

Don’t delay any payment

This is extremely important, as the payment history represents 35% of your credit score. Put everything you can on auto-pay, so there is no chance of forgetting about them. 

This is extra relevant when it comes to your credit card balance, loans, etc. These institutions are directly related to credit bureaus, so it will quickly damage your score a little bit.

Ask for a higher credit limit before applying for a new credit card

This is a good try, even if there is no guarantee that your card issuer will concede this upgrade. Let’s think about the factors that impact your credit score.

Applying for new credit cards hurts your score a little. On the other hand, asking for an upgrade on your credit limit will help you improve your credit score. That happens when you increase the difference between your limit and your usage.

Diversify your credit portfolio

If you already have a few credit cards, it could be better for your score if you apply for a personal loan instead. If you think about it, they’re almost the same thing.

Pay closer attention to interest rates to choose a good loan, and remember to pay for it always on time.

You can also choose loans for a specific purpose, like a car loan, a student loan, etc. 

Avoid carrying a debt for too long

Debts are bad for your credit score. And carrying them around will scratch your score a little each month. Make everything you can to avoid any debt and pay it as soon as possible. 

Learn the advantages of cash back while you improve your credit score

Now that you know if paying car insurance help your credit score, here’s another tip. Using a card is not ideal for improving scores. But if you must use a credit card anyway, choose one that gives you benefits. But is it really worth it to pick a credit card with cash back rewards? Read the following post to find out.

Coins Cashback falls into a credit card. Refund. Bonus payments

What is the advantage of cashback for your life

Are you wondering if you should apply for a credit card with cashback rewards? Read this post to find your answer.

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