Your Credit Rating and Auto Insurance Premiums

You might think that your credit history has nothing to do with the rate of your car insurance premium. The truth is there are several factors that insurance companies take into consideration when calculating your rate, one of the most important factors being your credit score. Irresponsible use of credit makes you a higher risk, which results in a higher premium. Fortunately, there are a couple of ways by which you can avoid paying those spiked premiums if you have bad credit.

Why Your Credit History Affects Your Insurance Premium

The characteristics of your credit score that concern an insurance company have less to do with your likeliness of taking on new credit than with how long you've been managing your credit. Stability is a crucial quality for insurers. Of course, they are also concerned with your ability to make payments on time; after all, they want to insure someone who wont be late on their monthly payments. Your insurer assumes that someone who can responsibly manage their credit is less likely to fail to make a payment and is often less likely to file claims. Bad credit history is evidence that you might have reckless spending habits and increase the risk you’ll want to file a claim on your policy. Therefore, someone with a flawed driving record but a good credit record could end up paying less for auto insurance than someone with a perfect driving history but a poor credit record. If you are aware that you have missed some payment deadlines here and there, but aren't sure how much your credit has been affected, your first move should be to find out your credit score. Make sure to request a credit report from a trusted credit report company, such as Experian.

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How to Improve Your Credit Score and Avoid Paying High Insurance Rates

The only real ways to improve your credit score are by better managing your debt and successfully disputing negative information on your report. To clean up inaccurate information, you must first check your credit report. Knowing what your credit actually is is the first thing you should do before taking any sort of action. Many companies, such as Experian, make accessing and viewing your credit history and rating a very simple process.

If you want to improve your score by better management of your debt, these are the 2 key principles to follow: Pay bills on time and keep balances low.

Also, if you're trying to boost your score do not simply close unused accounts. Sometimes shrinking your available credit without actually paying down your debt will change your utilization ratio or the amount of your total debt divided by your total available credit.

Pay Your Auto Insurance as a Lump-Sum

If your credit score is poor and there is little you can do to change it, there is one final way to avoid paying a higher rate. You can opt to pay your insurance premium as a lump-sum each year instead of paying your premium as a monthly payment. This will eliminate the risk to the insurer of receiving your monthly payment late and will result in a lower premium. But first, request a credit report right away so you know where you stand.

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