We all know that our credit score can affect our ability to secure a loan from a bank, get a credit card, and even land a job. But do you know that your credit rating can also determine the amount of your car insurance premium? Or in some cases, whether the insurance company decides to cover you at all?
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Why Does Your Credit Rating Affect Your Insurance Premium?
Insurance companies weigh a number of factors when determining the amount of your premium. Included in this are things like your driving record, the cost of your vehicle, and the zip code where you live. Less obvious, but just as important, is your credit score. The philosophy behind this is that studies have shown that a person’s credit rating is a reflection of the likelihood that they will file a claim. Based upon statistics, people with a lower credit are more likely to file a claim and as a result, a considered to be higher insurance risks.
How Do Insurance Companies Factor In Your Credit Rating?
Insurance companies will generate a ranking based on your credit score – this ranking is known as your “insurance score.” An insurance score is used to predict the potential of you filing a claim. Factors that determine the insurance score are:
•The amount (if any) of your outstanding debt
•Length of credit history
•Amount of available credit
•New applications for credit
•Past due amounts
•Public records
How Can I Improve My Credit Rating?
A higher credit score, among other benefits, will also reduce the amount you pay for car insurance. But how can you raise that score and start seeing lower premiums?
Pay your bills on time
Nothing can sink your credit rating faster than past-due bills. Overdue amounts demonstrate that your financial house is not in order. Make every payment on time, and your score is sure to rise.
Have at least three different credit cards
It’s important to have numerous credit lines open. We recommend at least three, and as cited above, be sure to make your payments on time. Also try to keep the amount of debt on the cards less than 30% of the credit limit. Cards that are maxed out or constantly near the limit will drag down your credit score.
Continue to use old credit cards
Older credit cards, ones that have been in your possession for a few years, should be kept active. Older lines of credit that are in good standing will bolster your rating. Make a purchase with one of these cards every so often.
Check your credit report
You can’t fix a credit problem if you aren’t aware that it exists. Request a free copy of your credit report (the three credit agencies – Equifax, Experian, and TransUnion – are required to give you a free report once a year). Inspect the report for any errors, inaccuracies, and problems. If you have issues with anything on the report, take care of it immediately. The sooner you get it fixed, the faster your credit score can improve.
Having a good credit score is just another way to lower your insurance premiums. Do what you can to raise your score and start paying less for car insurance. Another way to lower your rates is to get multiple online insurance quotes. Fill out at least three quote forms here at Cheap Quotes Car Insurance and save even more money on car insurance!