Many young couples assume that paying their monthly bills on time guarantees they have a good credit rating. When it comes time to buy a car or a house they are shocked to find out they do not have a glowing credit rating and have limited or no credit history. While your auto insurance account does not regularly report to your credit report and score, there are ways to make your regular payments work for you.
Credit Report Accounts
A big misunderstanding when it comes to paying your monthly bills is which accounts appear on your credit report. Any credit-based account you have appears on your credit score. This includes credit cards, personal loans, vehicle loans, mortgages and department store accounts. Your auto insurance, rent and utility accounts do not routinely appear on your credit report.
Pay With Credit Cards
This doesn't mean that your credit score cannot benefit from your monthly auto insurance payment. One way to work around not having your auto insurance reported to your account is to charge it to a credit account. You pay your insurance with a credit card and pay that credit card monthly. Now your auto insurance payment is working for you by establishing a payment history on that credit card account, improving your credit score. Just make sure you pay in full each month.
Benefits of Good Payment History
Even if you don't pay with a credit card, you should still make regular, on-time payments to your auto insurance. At some point in life, you may need to show an established history of on-time payments such as during the mortgage process. A quick call to your auto insurance company gets you the document in hand showing you pay your monthly bills in a timely manner. You may also qualify for in-house discounts if you pay your bill on time. Auto insurance companies like to reward their good customers with discounts and promotions.
Insurers and Collections
Your auto insurance may not be reported but your insurer certainly will report a lack of payments. Failure to pay your bill may result in a negative account on your credit report lowering your monthly credit score. If you default on your auto insurance contract, the insurer sends that account to collections, which can mar your credit for up to seven years and result in judgments, wage garnishment and lowered credit scores, not to mention perhaps causing you to lose your driving privileges for a time.
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