Can You Build Credit With Car Insurance? Just the Facts

A credit score is an essential aspect of building your financial life in the US, and there are several ways to build one. Depending on the location, a vehicle is essential, too, as the US doesn’t have great public transit options in many places. And if you buy a vehicle, you are required in almost every state to carry car insurance. 

Can you kill two birds with one stone? Does car insurance help build credit? Paying other bills can help your credit score, can paying car insurance build credit? We’ll discuss car insurance and credit, how credit impacts the cost of your insurance, and alternative ways of building credit. 

Car insurance and credit

If you buy or lease a car, you are required by the state you reside in to buy car insurance. You will need it to be able to drive legally. There is one exception. The state of New Hampshire doesn’t require car insurance. Still, drivers must show they have enough money in reserve to meet the state’s financial responsibility requirement, enough money to cover the costs if they were to cause an accident. 

Since you are required to have car insurance, does paying for insurance build credit? Sadly it does not. The act of having car insurance and paying the bill each month doesn’t build credit.

But not paying your bill on time or at all can negatively impact your credit score as it could lead to the account being sent to debt collections. If that happens, the delinquency will appear on your credit report for seven to ten years and lower your credit score. 

Credit and car insurance cost

The cost of car insurance depends on various factors, including location. Some areas have more car-related crime (stolen, smashed windows, etc.), worse road conditions, or more natural disasters that damage cars, like flooding from hurricanes. 

Those factors are beyond your control, but there is something you can control that can make your car insurance costs considerably lower; your credit score. 

Those with poor credit or a thin credit file pay, on average, $3,002 per year for full coverage, while those with excellent credit (generally a score of 760 or above) pay an average of $1,556 for a year of full coverage. That is 93% less! 

What does your credit score have to do with the cost of car insurance? From the insurer’s perspective, those with better credit scores are more responsible with money, which translates into the likelihood that they are also more responsible drivers than those with poor credit. More responsible drivers mean fewer accidents which means fewer claims the insurer has to pay out. 

Alternative ways to build credit

So now that you know you cannot build credit with car insurance, how can you build that all-important credit score?

Upwardli

Upwardli was created with the unique needs of new immigrants to the US in mind. Upwardli can help you build credit without the requirements many financial service providers have. Pre-approval is instant with no credit check or deposit. Your Upwardli account includes an unsecured line of credit to help build your credit quickly as we report your progress to the credit bureaus. 

Open a credit card

A credit card is a great way to build credit as long as it’s used responsibly. That means only charging what you can afford to pay off in full each month. It can be challenging for those with little to no credit history to be approved for a credit card, but Upwardli works with credit card issuers who understand people in those situations. 

Personal loans

Personal loans are another credit-building tool and a good alternative for those who don’t feel comfortable using credit cards. 

Start today!

It can take three to six months to build a credit history “thick” enough to qualify for apartments, loans, and credit cards, so don’t wait any longer! Start building your credit today with Upwardli.