Quotes provided by Comparison Market, the leader in auto insurance comparison
When you think of car insurance you probably do not think of your credit score, but you should. What does your credit score, or your credit history in general have to do with auto insurance....shouldn't it be your driving history?
What's the score here?
Insurers have always used various criteria to determine who to insure and at what rates. For example, if you're applying for auto insurance, your insurer might consider your age, driving record, make and model of your car, and how many insurance claims you've filed in the past. But within the last decade, insurance companies have also begun using credit information as an additional factor to help predict which persons pose more risk. Insurers believe that the healthier your credit history, the less likely you are to file a claim against your auto or homeowners insurance policy. And the more likely you are to pay your insurance premium payments.
If your credit history (along with other factors considered) suggests that you are likely to be a responsible driver, you may be offered a lower premium. But if your credit history is tarnished--or if you have little or no credit history--you may pay higher premiums for the coverage you're offered. You may even be denied coverage altogether.
How you can improve the score
If you're denied insurance coverage because of your credit history, the federal Fair Credit Reporting Act allows you to order a free copy of your credit report from the bureau used by the auto insurance company who denied you. If you feel the information provided to the credit bureau is incorrect, you can dispute it.
If you've been turned down for insurance, this may feel like too little, too late. But if your credit history is affecting your ability to get auto or homeowners insurance (or the premiums you're charged for it), here are a few things you can do:
- Clean up your credit immediately. Pay your bills on time every month, get rid of the high interest credit cards, and don’t spend beyond your means.
- If you don't have any credit, get some. Your lack of history is what's hurting you; to the insurance companies, you're an unknown quantity. Although you don't want to run up excessive debt, you do want to show that you can use credit responsibly. Use your credit regularly, and always make your monthly payments in a timely fashion.
- Once a year, get copies of your credit report from all three major credit bureaus. (The information contained in one report may not be reflected by the others.) Make sure the information on them all is correct. Dispute any errors with both the creditors and the credit bureaus involved.
- Shop around for insurance. Depending on the insurer, prices for the same coverage can vary substantially.
- Consider higher deductibles to save money. For both homeowners and auto insurance, higher deductibles can lower your premium costs. Just make sure you can cover the deductible should you be faced with a claim.
For now, the use of credit reports is an industry standard. Make your credit work for you by watching it closely. In most cases, you may be rewarded with lower premiums if you do so.
