Your credit score affects your ability to borrow and qualify you for cheap car insurance rates. When you have a bad credit history lenders can refuse your application for a loan or mortgage or charge you much higher rates. In the same way, some auto insurance companies can offer up to 25% discounts to motorists with excellent credit score. In addition, landlords and other interested parties may want to check your credit score before they approve your application.
Improving bad credit score or keeping your current good credit history is more important than many people appreciate. Most people realize how important credit is only when their loan applications are refused because of bad credit. The situation is even worse when it comes to insurance because many motorists still ask do car insurance companies check credit?
Does Credit Affect Car Insurance Rates?
If you haven’t checked lately how to save money on car insurance you may still have traditional views on vehicle insurance discounts. Until recently insurers used to mainly look at your age, driving record, claim history and zip code when they calculate auto insurance premiums. Lately, they have been looking into many other factors that have nothing to do with driving like credit score, home ownership, education and occupation.
One of the main reasons for this switch is the fact that insurers have found correlation between credit score and auto insurance claims. It has been statistically proven by many studies that people with good credit make fewer vehicle insurance claims. Initially, state authorities were reluctant to allow insurers look at credit history while calculating premiums but they had to agree to this practice after seeing the evidence. Currently, most insurers look at credit history when they give you a quote. There are only 3 states that don’t allow credit checks and a few auto insurance companies that don’t check credit. Otherwise, most vehicle insurance premiums are influenced by credit scores.
Most insurance companies like to include anything that is proved to be influencing automobile insurance claims into their premium calculations, partly because they can thanks to computer programming capabilities. Even though companies look at many more factors now while determining your premium they can still give you a quote in a few seconds. That is the reason why there are a few websites that allow quick car insurance quotes comparison online today.
How Much Does Credit Score Affect Car Insurance?
There are so many factors that influence your car insurance premium from how you pay to where you live. However, probably credit score is one of the most influential factors depending on where you live and the insurer. While some insurers are still looking at driving records as the main risk indicator a few companies has moved on to new factors. Some insurers offer as much as 20% car insurance discount to drivers with good credit score. That is why choice of vehicle insurance company can be very influential in how much premium you pay.
If you have good credit you should be seeking for companies that offer the largest discount for good credit history. You may still be able to keep your premium low even after a recent accident claim because of a large discount you receive for having good credit score. If you already have good credit you should make the most of it by getting the largest premium discount for it. If you have bad credit you should definitely read how to improve credit score below if you want to get twenty percent vehicle insurance discount.
Again, you should always compare car insurance quotes from different companies. You have a better chance of saving money on auto insurance if you haven’t compared quotes for a few years now. A few recent studies show that people aren’t doing their best to get lower car insurance quotes and there are so many policyholders who haven’t gotten alternative quotes for years. There are so many things that could have changed since you last changed your auto insurer. For example, your credit score keeps changing every so often depending on your financial transactions and other details. Therefore, it is a mistake not to check for alternative quotes.
You will need to follow a completely opposite strategy if your credit score is bad or has been falling lately. In that case, you should be looking for the best auto insurance for people with bad credit. Every insurer has its own proprietary premium calculation formula that separates them from others. As mentioned above, some companies still believe in traditional factors as their main indicators and pay little or no attention to credit score.
10 Steps to Improve Credit Score
It is essential to understand what matters for credit agencies and know how to improve credit score. Only few credit agencies are used by most lenders or insurers and they look at a few indicators to determine the overall score. You need to know what they are looking for. Here are a few pointers to show how to improve bad credit score so that you can turn its negative affects on auto insurance rates to a great discount. These tips will help you avoid mistakes that cost you points.
- You Should Get Your Report
First of all, you should get your report and see. Some agencies can allow you to look at your credit history whenever you want for a small monthly fee. This plan can usually be cancelled whenever you want. You can also obtain your free report once a year from each of the major agencies at annualcreditreport.com. Remember, you don’t need to request them all at the same time. If you request one from a different agency every four months, you can monitor your credit history year-round. Regular checks also help in detecting identity theft quickly.
You should deal with any inaccuracies at this time. If you see something that shouldn’t be there you can contact the company in question and get it corrected. It will eventually get corrected by the agencies and improve your rating. You should know that pulling your own report doesn’t affect the score.
- You Should Have A Good Look at Your Report
You should take your time to read it through and observe what is included in it. Remember that your insurance credit rating is largely based on credit score. There are clues there about what matters and what is taken into account. You will see;
- Your address details and other people that are linked to you due to sharing the same address.
- Your payment histories to your creditors including when the credit facility was set up, how much is the loan amount and how much of it is used or paid back.
- All the credit applications you made regardless of being successful or not.
- All the credit checks on you carried out by third parties.
- Any payment arrangements in place like direct payments to utilities providers.
- Any credit related judgement against you or any credit payment agreements you entered with your creditors. Bankruptcy, court payment orders and collection agency actions will be shown and detrimental to your history.
- Not Having Any Traceable History Doesn’t Help
Living under the radar doesn’t mean that you are clean. If the agencies cannot detect enough activities they cannot give you high scores. You need to be paying bills, seen living in certain addresses that is conferrable. Address is used as confirmation that makes information reliable. Therefore it is pretty important that you don’t keep moving too often.
- It Isn’t Bad to Get Credit
Having credit is good unless you are borrowing beyond your means and appear to be struggling with it. That means that lenders are happy to extend you credit. Getting a credit card is fine and actually helps you. In time the company will increase your limits that will help you further. The longer you keep a card the better as well. If you have a credit card with a $20,000 limit but you are paying the outstanding balance every month your story checks out and looks good.
You need to have a lot of credit available to you through your cards but you don’t use them if you want the top scores. Debt to Credit Ratio is important and therefore you should try to increase your card limits. On the other hand, maxing your credit cards is bad news.
- Having Too Many Loans and Credit Cards Can Be Bad
If you have too many different loans and credit cards you may be seen as serial borrower. And your ability to manage them can be questioned by other lenders. Anything that is out of ordinary will be picked up. Some lenders may actually ask you to pay off certain loans before they can extend you credit or ask to use some of the new credit to pay off old ones.
Having different lines of credits is usually fine. For example, having a mortgage, car loan and couple of credit cards looks healthy as long as you never miss a payment.
- Too Many Credit Checks Is Bad
Each time a credit agency pulls (requests) your records you lose points. Therefore, you shouldn’t keep applying for a credit. If you failed with one company you should give it a little time before applying to another one. In addition, opening too many new credit lines in a short time is a bad sign.
It is important to note that credit checks carried out by insurance companies are considered soft pulls and don’t affect your score. So, you can get as many car insurance quotes as you like without worrying at all.
- You Can Manage Your Credit Score
If you know what is included in the calculations you have a good chance of controlling, even manipulating it. You need to feed them the right sort of information and let them have solid confirmation. For example, it is great if they can confirm your address through government agencies like electoral roles. You should make sure your name appears there.
You can manage your finances even when you cannot. You can talk to utilities providers, credit card companies or banks and get the due dates on payments extended. Most companies will be obliged with this request especially if you are an established customer.
- How to Keep Your Score High If You Have Variable Income
It is essential for people with variable income to have sufficient spare funds to manage their finances. Depending on how variable your income you should have sufficient savings to cover 3-6 month worth of living expenses.
You should also make sure that your living expenses are manageable. You shouldn’t calculate your earnings on a good month bases but on a bad month bases. This will allow you to keep the rent and other essential expenses low.
Keeping a good credit is all about paying your bills in time and not getting into too much debt. With sufficient savings and manageable living expenses you are unlikely to run into money problem.
- Establish History
Second part of credit score is about establishing a trail and reliable base. Being registered on a voting role and establishing yourself in your address are some of the other factors that can help you. So, having your own place where you pay the utilities bills can help you, rather than renting a room in someone else’s house or sharing it with too many people.
10. Establish a Long Money Trail
Having a good money trail is healthy in terms of credit. Open a bank account and keep it as long as you can, instead of keep closing one and opening another. The same applies to your cards as ages of your accounts matter. The older is your account the better because the trail is longer. They want to see an established and healthy money trail.
It is clear that your credit history affects car insurance rates. You probably agree that the above tips on how to improve credit score aren’t hard to follow. Motorists may have to pay thousands of dollars to insure their automobiles, especially after accidents and tickets. Turning a problematic bad credit history to good credit that is advantageous can be seen as one of the ways to save on car insurance. The good news is that you can achieve this change within only few months. On the other hand, auto insurance rates take 3 years to recover after an accident fully, as long as you don’t have another accident in the meantime.