Reader’s Question:

If I pay my car insurance every month, does it helps me to build good credit standing?

Gene

Sacramento, CA

Typically car insurance premiums are not paid on a loan contract, but rather directly to the insurance providers. You pay for future coverage and if you don’t pay, then you wont have future coverage, therefore no credit is being given to the consumer. In some circumstances, you may finance your premium through a premium finance contract but those contracts don’t report to a credit bureau and like I said if you don’t pay the collateral (coverage) is removed.

If you have unpaid premiums or outstanding balances for coverage received then a company will try to collect. If they can’t collect they may forward to a collection agency. Those will for sure negatively affect your credit rating.

Not having a credit history can make it hard to get insurance, buy a car or get a house mortgage. A credit score is assigned by many insurance providers and it is based on your credit history including such things as bill paying history, late payments, the number and type of accounts you have, collection actions and outstanding debt. Your payment history typically makes up the most important aspect of this, about 35 percent usually.