My Credit Affects My Car Insurance Rate?
You probably know that lenders use information in your creditreport to determine if they'll give you credit. But did you knowthat in some states, insurance companies also consider yourcredit history? Good or bad, your credit history may affect yourability to purchase homeowners or auto insurance coverage andhelp determine what premium you'll pay. For example, consider these scenarios:Two years ago, you were unemployed for six months. Before youcould find a new job, you fell behind on several credit cardpayments. Now your auto insurance rates are going up, eventhough you've never filed a claim against your policy. You've always paid your bills on time, and you've always paidcash instead of applying for credit. Why could this be aproblem? Similar to when you apply for a mortgage or creditcard, your lack of credit history means you're an unknownquantity - there is no history of monthly credit card payments. Many people believe that only their driving record isimportant, but that's simply not the case. The majority of autoinsurance companies consider credit to be a very importantrating variable.What's the score here?Insurers have always used various criteria to determine who toinsure and at what rates. For example, if you're applying forauto insurance, your insurer might consider your age, drivingrecord, make and model of your car, and how many insuranceclaims you've filed in the past. But within the last decade,insurance companies have also begun using credit information asan additional factor to help predict which persons pose morerisk. Insurers believe that the healthier your credit history,the less likely you are to file a claim against your auto orhomeowners insurance policy. And the more likely you are to payyour insurance premium payments.If your credit history (along with other factors considered)suggests that you are likely to be a responsible driver, you maybe offered a lower premium. But if your credit history istarnished--or if you have little or no credit history--you maypay higher premiums for the coverage you're offered. You mayeven be denied coverage altogether.How you can improve the score If you're denied insurance coverage because of your credithistory, the federal Fair Credit Reporting Act allows you toorder a free copy of your credit report from the bureau used bythe auto insurance company who denied you. If you feel theinformation provided to the credit bureau is incorrect, you candispute it. If you've been turned down for insurance, this may feel liketoo little, too late. But if your credit history is affectingyour ability to get auto or homeowners insurance (or thepremiums you're charged for it), here are a few things you cando:Clean up your credit immediately. Pay your bills on time everymonth, get rid of the high interest credit cards, and don'tspend beyond your means. If you don't have any credit, get some.Your lack of history is what's hurting you; to the insurancecompanies, you're an unknown quantity. Although you don't wantto run up excessive debt, you do want to show that you can usecredit responsibly. Use your credit regularly, and always makeyour monthly payments in a timely fashion. Once a year, get copies of your credit report from all threemajor credit bureaus. (The information contained in one reportmay not be reflected by the others.) Make sure the informationon them all is correct. Dispute any errors with both thecreditors and the credit bureaus involved. Shop around forinsurance. Depending on the insurer, prices for the samecoverage can vary substantially. Consider higher deductibles to save money. For both homeownersand auto insurance, higher deductibles can lower your premiumcosts. Just make sure you can cover the deductible should you befaced with a claim. For now, the use of credit reports is an industry standard. Makeyour 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.comPlease note that this description/explanation is intended onlyas a guideline.
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