How Bad Credit Can Raise Car Insurance Rates

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How Bad Credit Can Raise Car Insurance Rates on avanteinsurance.com

3 steps to help lower the cost of auto insurance

If you’ve ever made a big purchase such as a house or a car and had to get a loan, you understand the importance of having a good credit score. However, you might not be aware that credit can also affect what you pay for car insurance. Insurance companies take many factors into an account when determining what you should pay, and the rate is all based on the likelihood of you filing a claim. Of course, there are standard factors such as driving record, age, the kind of car you drive, and where you live, but increasingly credit score is being used as way to measure the risk to the insurance company.

According to credit.com, “Credit is considered a rating factor for nearly all US drivers. Insurance underwriting (that is, how insurance companies assess and price your individual risk) is all about statistics, and insurance companies have found that people with lower credit scores statistically file more claims than those with higher scores.”

So a lower credit score often means higher insurance rates, but what does that really mean?

A report from insurance comparison site Zebra.com found

Drivers with poor credit pay more than twice as much for car insurance as those with excellent credit scores.

Drivers who increase their credit scores by one tier (e.g. from poor to fair) can save an average of 17% on their annual auto insurance premiums.

Improving your credit score from poor to excellent would yield 53% savings (an average of $1,281 per year).

(Note: California, Massachusetts and Hawaii cannot use credit scores to determine insurance rates, but most other states do.)

So, what can you do to lower your car insurance rates?

Step 1: Know your credit score.

There are several agencies that will send you a free credit report, including credit.com. A poor credit score is considered 524 or below, an excellent score is 823 or above. It’s a good idea to check your credit score about every 6 months to ensure there have been no changes.

Step 2: With your score in hand, you can work to improve it.

It’s all about making better choices and coming up with ways to improve your financial health. Determine a plan to increase your savings, pay off and/or manage debts, pay down credit cards, and more. You can speak to a financial advisor or find online tools or software that will help create a budget and develop a personal financial plan.

Step 3: Check insurance rates periodically.

This is a big one and something most people fail to do. In fact, a NerdWallet analysis found that, “38% of Americans who have car insurance haven’t compared insurance costs in at least three years, if ever.”

It’s not just credit scores that can affect your insurance rates. Things like coverage lapses, violations, claims, and your age might have an impact. In some cases, you might be able to pay less, for instance, if you have a safe driving record or you’ve changed jobs and now have a shorter commute. It’s also a good idea to compare prices among several different companies, not just your current insurance provider. So, check your auto insurance rates every 6 months to a year.

If you need a consultation about your insurance needs or you have questions about reducing your rate, contact Avante Insurance today.