My Credit Affects My Car Insurance Rate?

 You probably know that lenders use information in your credit report to determine if they'll give you credit. But did you know that in some states, insurance companies also consider your credit history? Good or bad, your credit history may affect your ability to purchase homeowners or auto insurance coverage and help determine what premium you'll pay.

For example, consider these scenarios:



Two years ago, you were unemployed for six months. Before you could find a new job, you fell behind on several credit card payments. Now your auto insurance rates are going up, even though you've never filed a claim against your policy.



You've always paid your bills on time, and you've always paid cash instead of applying for credit. Why could this be a problem? Similar to when you apply for a mortgage or credit card, your lack of credit history means you're an unknown quantity - there is no history of monthly credit card payments.

Many people believe that only their driving record is important, but that's simply not the case. The majority of auto insurance companies consider credit to be a very important rating variable.



What's the score here?

Insurers have always used various criteria to determine who to insure and at what rates. For example, if you're applying for auto insurance, your insurer might consider your age, driving record, make and model of your car, and how many insurance claims you've filed in the past. But within the last decade, insurance companies have also begun using credit information as an additional factor to help predict which persons pose more risk. Insurers believe that the healthier your credit history, the less likely you are to file a claim against your auto or homeowners insurance policy. And the more likely you are to pay your insurance premium payments.



If your credit history (along with other factors considered) suggests that you are likely to be a responsible driver, you may be offered a lower premium. But if your credit history is tarnished--or if you have little or no credit history--you may pay higher premiums for the coverage you're offered. You may even be denied coverage altogether.



How you can improve the score

If you're denied insurance coverage because of your credit history, the federal Fair Credit Reporting Act allows you to order a free copy of your credit report from the bureau used by the auto insurance company who denied you. If you feel the information provided to the credit bureau is incorrect, you can dispute it.

If you've been turned down for insurance, this may feel like too little, too late. But if your credit history is affecting your ability to get auto or homeowners insurance (or the premiums you're charged for it), here are a few things you can do:



Clean up your credit immediately. Pay your bills on time every month, get rid of the high interest credit cards, and don't spend beyond your means. If you don't have any credit, get some. Your lack of history is what's hurting you; to the insurance companies, you're an unknown quantity. Although you don't want to run up excessive debt, you do want to show that you can use credit responsibly. Use your credit regularly, and always make your monthly payments in a timely fashion.



Once a year, get copies of your credit report from all three major credit bureaus. (The information contained in one report may not be reflected by the others.) Make sure the information on them all is correct. Dispute any errors with both the creditors and the credit bureaus involved. Shop around for insurance. Depending on the insurer, prices for the same coverage can vary substantially.

Consider higher deductibles to save money. For both homeowners and auto insurance, higher deductibles can lower your premium costs. Just make sure you can cover the deductible should you be faced with a claim.



For now, the use of credit reports is an industry standard. Make your credit work for you by watching it closely. In most cases, you may be rewarded with lower premiums if you do so.



For more information about auto insurance please go to: Insurance.com



Please note that this description/explanation is intended only as a guideline.



About the author:

None

 Rob Sliver

More Articles 

Common Mistakes To Avoid When Purchasing Term Life Insurance - Mike Bell
When purchasing term life insurance, there are a number of factors to consider. Consumers should make certain they understand the concept of term life insurance and make purchases accordingly. Here are a few of the most common mistake people make...

Why you need house insurance - Jason Hulott
House insurance is among the most important insurances you can get - and in the case of buildings insurance, most mortgage lenders make it compulsory. This is because your home is your biggest asset and if you lose it because of fire, flood or...

What's The Lowdown On Variable Universal Life Insurance? - Peter Crump
If permanent insurance with flexible premiums and options is important to you, you'll want to choose a variable universal life insurance policy. This type of policy combines features of universal life insurance with investment options, so you have...

How to Save on Your Auto Insurance - Tom McKnight
Let your fingers do the walking… Remember that Yellow Pages Ad Campaign? Excellent advice if you're shopping for auto insurance. Shop around and do it yearly. Don't just keep paying the invoice over and over without comparison shopping. Below are a...

Buy Life Insurance Online and Save! - Brad Triggs
There are many ways to research and buy a life insurance policy, but the fastest and most affordable way is to buy life insurance online. This way, you can supply the most accurate information and compare the greatest number of different quotes and...

Choosing The Best Auto Insurance Company - Daniel Richards
Choosing the right auto insurance company is very important since they will be the one to help you settle any auto related mishaps in the future. Auto insurance companies follow a basic set of benefits which they provide their policyholders....

What Is Homeowners Insurance Coverage? - Tim Gorman
Before attempting to find the best homeowners insurance coverage you should make sure that you are familiar with what homeowners insurance is and what it can do for you. A standard policy provides financial coverage to your house and the property...

Insurance for those owning Kit Cars, Classic or Imported Cars - Jason Hulott
Car insurance policies can be perplexing as there are a number of insurance companies offering different types of insurance coverage with different policies. Nowadays the UK insurance companies have broadened themselves to guard against almost any...

What is Auto Insurance Really All About? - Tim Gorman
Auto insurance is an agreement between you and your insurance company where you arrange to pay a premium in an exchange for the peace of mind that your insurance agency will pay for vehicle related financial losses during the duration of the policy....

SUV Owners Pay More for Insurance - Rob Sliver
Hortencia Privett is like thousands of other owners of Sports Utility Vehicles (SUVs). Privett admits that she loves what she drives, a silver 2002 Jeep Liberty, but insurance experts caution that she and other SUV owners have to pay...

Health Insurance 101 for Individuals and Families - Michael Ertel
The changing healthcare and health insurance landscape in the United States has resulted in more individuals and families purchasing health insurance coverage on their own. Rather than touch on the number of reasons why this is the case, I would...

Moneynet blasts high street travel agents for exorbitant insurance premiums - Moneynet
Moneynet blasts high street travel agents for exorbitant insurance premiums * Holidaymakers taken for a ride with ‘extortionate’ high street travel insurance premiums * Single trip premiums not regulated by FSA – consumers vulnerable * Buying...