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Car insurance companies will consider your credit when you’re buying a policy, but car insurance does not build credit or affect your credit score
That said, most insurers allow you to pay your premiums with a credit card
If you choose to pay your car insurance with a credit card, it’s essential that you make your credit card payments on time, or else you risk hurting your credit score and paying steep interest rates
When you buy car insurance, an insurance company will typically check your credit score in order to help calculate what the cost of your car insurance premium will be. They will combine your credit score with a variety of other factors, like your age, the make and model of your car, and what ZIP code you live in, to determine your car insurance quote. If you have bad credit, your rates will be higher, and the insurance company could potentially decide to not insure you at all.
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When you make scheduled payments, like on a car loan, you build up credit. So it’s fair to wonder if your regular car insurance payments also build credit. The answer falls into a bit of a grey area — car insurance does not build credit, however if you pay your premiums with your credit card, your car insurance payments will ultimately affect your credit score.
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Yes — most major car insurance companies give you the option of paying your car insurance premiums with a credit card. You can pay with a one time charge to your credit card, or you can set up automatic payments from your credit card.
You can also pay your car insurance in other ways:
Most insurers give you the option of paying your car insurance either monthly, bi-anually, or annually. Some car insurance companies will charge a fee if you use a credit card, however most insurers offer a discount if you pay your car insurance in full, meaning you’d pay a full year of car insurance premiums upfront.
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Although car insurance companies will do what’s called a “soft inquiry” to check your credit, that’s the only time your credit intersects with your car insurance. Unlike loans, car insurance does not build credit or affect your credit whatsoever. Car insurance companies do not report to the credit bureaus, and the “soft inquiry” they conduct if they check your credit score won’t affect your credit like the credit check a lender conducts when you apply for a loan. That said, if you do pay your car insurance with your credit card, like any purchase you make or bill you pay with your credit card, it will affect your credit score. It’s important to know that when you are putting your car insurance on your credit card, it is essential that you make your credit card payments on time.
If you don’t make your payments on time, you risk having to pay interest on your credit card, which can be as high as 20%. However, if you do make your payments consistently on time, then putting your car insurance on your credit card and subsequently paying it off each month could help your credit score.
In addition to building credit, putting your car insurance on your credit card can also benefit you in other ways.
You could earn reward points
It may be faster and more convenient to use a credit card
While applying for car insurance doesn’t affect your credit score, paying your car insurance on your credit card could potentially land you in hot water. If you miss a payment, it’s going to affect your credit. Because credit cards have very high interest rates, you could potentially harm your credit score and put yourself into debt if you put your car insurance payments on your credit card and don’t pay them off in time.
Paying your car insurance on your credit card could also mean extra fees. If you sometimes miss payments or don’t have a great credit score, it’s probably better to find a different way to pay your car insurance.