Do Late Auto Insurance Payments Affect Credit Score?

Policyholders are safe from effects of late premium payments on credit scores as vehicle insurance companies don’t report premium payments to credit agencies, according to Experian. Still, motorists need to make sure they don’t miss it if they want to avoid policy cancellations due to non-payment and settle with their providers properly when they cancel policies.

Generally, car insurance is paid in advance. If you settle the full amount there is nothing to worry about. If you pay in installments, carriers usually make sure that you still remain ahead of the coverage. So, it is unlikely that a policyholder would owe much money, if any, when a policy is cancelled by them or the insurer because of this advance payment mechanism.

Many people may be worried that they have to pay more money if they contact their insurers to end a policy. Actually, it is more likely that policyholders get a vehicle insurance premium refund if they let their providers know when they don’t need the coverage anymore for whatever reason because of the way companies make sure they get their money first.

There is a slight chance that you may still owe money to your automobile insurer and they may send it to a debt collector when you don’t pay or respond. In such cases, collection agencies are likely to report this incident to credit bureaus and this may cost you about 10 points in your score. Any unpaid bill passed onto debt collectors clearly shows that you didn’t settle it the way you should have.

If the debt collection agency cannot find the person or the person doesn’t respond the next step would either be giving up or taking it to courts. If it goes to courts and a debt payment judgement issued, this would hurt credit scores substantially.

Usually, car insurance companies are required to send a notice to cancel a policy so that is what they do if a payment is late and cancel if they don’t get any response or payment at the end. They often don’t take it any further with debt collection or keep writing.

It is important to keep an up-to-date auto insurance policy, especially if you are still driving. If you are not switching to another company and still want to keep your policy, you should contact your carrier the moment you realize your payment hasn’t been made. Most companies would be happy to carry on the coverage once the arrears are cleared.

Some companies may choose to end vehicle insurance coverage once the notice period is over and not allow people to bring their premium balance up to date. And some of them may require full payment of the outstanding balance to continue. This is the route they take when they are dealing with a policyholder who is habitually late.

In such cases, people should arrange alternative policies before the notice period is over to replace the one ending. Companies are required by their state to inform the DMV office of cancellations of liability car insurance coverage. So, there is not much room for escaping as DMV will quickly be on their trails. Also, their lenders may be informed if they have a loan on the car.

Policyholders with bad money management are highly advised to pay the full amount at the start and be done with it. It wouldn’t be prudent to take a chance on it. Car insurance is a simple contract and if you don’t make the due payments, you break your end of the bargain.

Furthermore, most carriers would check the credit score before offering quotes or initiating coverage and before allowing any policyholder to set up an installment plan. Having a lower score can result in higher auto insurance since it is one of the key factors affecting rates. Also, you may have to come up with the full amount upfront if you want to take the quote.