Cash is King – Upside Down Mortgage Solutions

September 2, 2009

Your Credit Score: Does It Affect Your Car Insurance Premium?

The answer to that question has quickly become a resounding ‘Yes.’ Today, most auto insurance companies use your credit score as a factor in determining your premium rates. But it shouldn’t come as that much of a surprise to you. After all, credit is a factor for everything from renting an apartment to purchasing a new cell phone. In a sense, auto insurance companies are extending a line of credit, of sorts, to those they insure. It is in their best interest to make sure they insure those who will file the least amount of claims, or that they charge significantly more for those who will.

Why Credit Matters

While there are a few insurance companies that don’t look at credit scores in determining premium rates, most do. In fact, it is estimated that around 92 percent of insurance companies do look at your credit. They do this because, just as in other situations, your credit is seen as a sign of just how risky of a driver you may be. If you have a low score insurers may feel that you are someone who takes more risks, doesn’t keep up on their financial responsibilities and will be more likely to file claims, thus costing them more money.

Having poor credit may impact your insurance rates but, as you know, a credit score doesn’t tell someone’s whole story. Because of this, it’s not the only piece of information they use. They also look at your driving record, age, where you live, vehicle being insured, and other factors. You may be able to help offset poor credit somewhat by having a great driving record and by avoiding having a vehicle that is considered risky, such as a sports car.

What You Can Do

The good news is that, if you have good credit, you are likely to save money on your insurance premiums. So this is yet another reason to try to improve your credit. But just how do you go about doing this? Start by getting a copy of your credit report and reviewing it. Locate anything that is not correct and file a claim with the agency to inform them that it is inaccurate.

Beyond that, work at fixing any credit problems you have and improve it overall. You can do this by paying bills on time, lowering your debt to income ratio, and not opening up new credit accounts. Then, be sure to get new auto insurance rates periodically. If you get your insurance policy with a credit score of 525 and you raise it after a year to 620, you will want to either inform your current carrier or get quotes from others to go elsewhere. Improving your rating should translate to a lower premium, either with your current insurer or by obtaining a new one.

September 1, 2009

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