DOES MY CAR INSURANCE POLICY AFFECT MY CREDIT SCORE?

Making on-time payments on your car insurance policy is important, but not always for credit-related reasons. While your credit history can influence how much you pay for car insurance, missing a payment on your policy will not harm your credit score.

Does Car Insurance Appear on Your Credit Report?

Because car insurance companies do not report premium payments to credit bureaus, your policy will not appear on your credit report.

If you stop paying your bill, your insurer, like other types of accounts such as utilities and medical bills, may send an unpaid balance to a collection agency. At that point, the debt collector will almost certainly report the account to the credit bureaus, which can harm your credit because it indicates that you did not pay your bill on time.

Insurance companies may simply cancel your policy rather than reporting late payments or sending a bill to collections.

That's not to say you can ignore your car insurance payment if you don't want to. If your coverage lapses due to nonpayment — or for any other reason — you may face higher insurance premiums in the future.

Because insurance policies rarely appear on credit reports, your credit score is likely to be unharmed if your insurer does not send the account to collections. Other items that will not appear on your credit report include:

1. Income
2. Age
3. Marital status
4. Bank account information
5. Level of education
6. Criminal records

Does Your Credit Affect Insurance Rates?

While your car insurance policy will never have an effect on your credit score, the inverse may be true. According to the National Association of Insurance Commissioners, in states where the practise is legal, 95 percent of auto insurance carriers use what's known as a credit-based insurance score to calculate premiums.

The score is based on your credit history, but it is not the same as the traditional FICO® Score used by lenders, even though it takes into account many of the same factors.

Check Your Credit for Opportunities to Improve

Having good credit is important not only for financing but also for insurance policies. Check your credit score and review your credit report to see where you stand and to identify areas of your credit file that need to be addressed. You can check your credit score and history with one of three credit reporting agencies.

Depending on what you discover, be proactive in making the necessary changes to your credit habits in order to raise your credit score. Among the possibilities are:

1. Getting caught up on past-due payments and making all future payments on time.
2. reducing your credit utilisation by paying down credit card balances
3. Filing a dispute if you discover information on your credit report that you believe is incorrect.
4. Avoiding new credit applications unless absolutely necessary.
5. Keeping old credit card accounts with good histories open, even if you don't use them anymore.
6. Requesting that a loved one make you an authorised user on their credit card account.

As you work to improve your credit, keep an eye out for potential inaccuracies or even fraud. You can view your FICO® Score and Experian credit report for free with Experian's free credit monitoring service, and you can also receive real-time alerts when changes are made to your credit report.

Whatever method you use to build your credit history, the key is to be proactive and consistent in your efforts in order to maintain momentum for long-term success.