Does paying an insurance premium on time build a good credit score?
Every bank asks for your credit history as soon as you express the idea of taking out a loan. Whether you’re applying for a home loan, car loan, or even an education loan, expect your credit score to be scrutinised.
But as long as your credit history is clean, you have a higher chance of getting a thumbs up from the bank. Many people question whether paying their insurance premiums on time qualifies for good credit or not. Well, there are two ways to look at it.
Paying insurance premiums on time does not improve your credit score. It’s the bitter truth. Your credit score reflects the information of when you had taken out the loan and whether you were able to pay it within the time limit or not. Insurance premiums don’t qualify as loans. Whether it is your car insurance or life insurance, paying their premiums on time won’t count in your credit score.
However, you can still use your insurance premiums to build good credit. You just need to play things cleverly. Pay all your insurance premiums through your credit card every month. A bank will check the monthly payment statuses of your credit card. If you pay the amount in full, it will qualify as good credit in your credit history. Insurance premiums, per se, may not qualify as loans, but paying anything through credit cards does.
Will delayed payments for premiums affect your credit score?
While insurance premiums don’t help your credit score, they don’t hurt your credit either. But of course, there is a risk that the insurance company may cancel your insurance policy altogether if you don’t pay the premiums on time. For car insurance, particularly, you need to have active insurance. If not, you may get into a lot of trouble if the police ask you to pull over for some reason. Even if someone else rammed their car into yours, you might end up getting a ticket for driving without active insurance.
Some states are very strict about car insurance policies. You may have to pay a significant fine, see your license suspended temporarily, or even spend time in jail for driving without insurance.
If you don’t pay the fine for driving without insurance, it will get added to your collections. In such cases, the penalty will come back to bite you as collections show up on your credit history. The bank may decline your request for taking out a loan if it sees that you have multiple pending collections.
What’s the solution?
There’s only one way to improve your credit score by paying insurance premiums. You need to connect your credit card as your payment mode instead of a debit card or direct debit from your bank. And this trick works for almost every type of insurance. If you don’t use a credit card, hard luck. You may have to find other ways to improve your credit score.
You can start by paying off other debts timely. Otherwise, it wouldn’t be a wise idea to rely on your insurance premium payments as the bank may not consider it as repayments for loans.
The editorial unit