How your Credit Rating Affects Insurance Rates
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Most of us know that the car we drive or the area we live plays big roles in auto insurance costs. Few people realize, though, how much a person’s credit rating can impact their auto insurance premiums. They always associate it with getting a mortgage or automobile loan and not getting cheap insurance. Now, nearly every insurer in the U.S. is placing more emphasis on this metric to calculate rates.
The bad news is if your credit rating is low, you will probably pay more for coverage. The good news is that if your score is high, there are some great deals for the smart shopper. Let’s take an up-close look at how your credit score impacts car insurance rates and what you can do about it. Get your online quote today at good to go insurance and save up to 45% instantly.
Automobile insurance companies utilize an underwriting process that uses multiple factors, which creates a “risk algorithm” that determines a person’s rates. The entire function of the algorithm is to calculate, with an average amount of accuracy, your probability of getting into an accident and filing a claim. In common speak, insurers want to know how risky writing a policy for you is going to be and if you will pay your premiums on time. Accident costs are increasing as healthcare-related expenses have shot up in recent years. Insurance companies claim costs are going up and this means added pressure to raise premiums.
Insurers have raised premiums in recent years to charge more for customers with bad credit. They associate a bad score with higher risk. The data seems to back up this assertion. People that pay their bills on time tend to be more cautious drivers and, you guessed it, get into fewer accidents. On the other hand, those with a bad credit profile take more risks while driving and file more claims. Even if you have a great driving record and have not gotten into an accident in years, you will probably pay more for coverage if you have a bad credit history.
Several states are not allowed to use credit history to determine your car insurance cost. This includes Massachusetts, Hawaii, and California. The other 47 states are authorized to use credit to calculate premiums. If you live in California, you are already paying some of the highest costs in the country, but it always makes sense to keep your credit in good standing.
Although your credit score will play a role in your coverage costs, remember it is just one of many factors. Here are a few of the big ones.
* The Zip Code where you live
* The Car you Drive
* Your Driving History
* The Automobile and model
* Your Age
If you need lower rates to make your budget work, get a cheap car to insure and drive safely. Those are two of the biggest factors that will bring down the cost of your premiums the most.
How to Improve your Credit Score
There are several things you have control over that can improve your score. This will help you get cheaper car insurance and better rates on key loans, like your mortgage. The first thing you should do is order your credit report. Go over it thoroughly and check it for any errors. If there are non-accurate items, write the three major reporting firms and make a note that these items should not be on the report. Explain why and provide as much proof, including receipts of paid bills.
Next, you should start paying all of your bills on time each month. Many people are unaware that most of your late bills are reported to credit agencies. If you have to pay your bill anyways, it only makes sense to pay it on time. Another tip is not to apply for many credit cards. This will tip off lending institutions that you are perhaps desperate for money.
Once you get your credit score up, get ready to go auto insurance shopping. Look for direct providers like good to go insurance. At good2go, you can compare up to ten quotes in only about 5 minutes. You can also buy your policy online anytime. Get started today and save hundreds on auto insurance.