There are lots of reasons to keep tabs on your credit history – getting a bank loan, a new rental and even a new job can be easier if your credit score is high. But did you know that your credit history also impacts how costly your auto insurance rate will be?
In most states insurance companies are allowed to use your credit record to determine, at least in part, the rate you will pay. As of this June, in fact, a carrier does not even have to tell you that your poor credit score has hiked up your rates. If you are looking to lock in very cheap car insurance it is vitally important that your keep your FICO score as high as possible.
Nearly all insurers in the U.S. use your credit score – issued by either Fair Isaac or ChoicePoint – as part of their formula to determine your premiums. Some insurers weigh your score heavily while others do not.
While it may seem unfair that your credit score plays such an outsized role in the cost of your car insurance, it is simply another measure of your potential risk. When issuing you a policy insurers try to figure out how likely you are to get into an accident or have your vehicle stolen, two events that end up costing the carrier money.
Studies have shown that how well people manage their credit is an accurate indicator of insurance risk. From an insurance company’s perspective, if you can’t pay your bills you may be more likely to file claims.
Regardless of whether your credit score accurately measures your risk or whether it’s even fair, you’ll want to make sure your carrier sees your financial situation in the best possible light.
According to experts, insurers usually pay more attention to how promptly you pay your bills than to what type of credit you have. So you will want to make sure that you are vigilant about paying your bills on time – remember that late payments stay on your credit record for seven years.
Keep your revolving credit balances low because insurers examine how big your debt load is relative to your available credit. Also, keep your oldest credit card because like other creditors insurance companies like consumers with long, established credit histories.
If you are not using one or more credit cards, get rid of them as having too many can hurt your credit score. Also, do not apply for a bunch of credit cards, especially close to the time you will be shopping for car insurance.
If your current insurer jacks up your rates because your credit score has gone down, don’t just sit there. Get online and start shopping for a new policy. Since each insurer weighs your credit history differently, chances are you will find a better rate by getting rate quotes from multiple carriers. Get started finding quick car insurance rates today!