How Credit Scores Affect Car Insurance
Having a credit report run is commonplace for practically everything in modern society. Whether it is a loan, a job, a place to live or even insurance that is needed, people should expect the company to check their credit history and realize that credit scores affect car insurance rates. This report is essentially a summary of their financial behavior, responsibility, and strength. A credit score can have either a positive or negative impact on your search for cheap car insurance.
Why Check My Credit?
A credit report or score says a lot about your finances. If your credit score is high, it means you have made payments on time and used your credit responsibly; the opposite is true for someone with a low credit score. Consumers with low credit scores are viewed as unreliable and as greater financial risks.
Auto insurance companies use a credit report to tell them if the applicant has paid their bills on time or had any criminal or civil judgments filed against them. This is extremely relevant to insurance carriers because most people pay out their insurance policies in monthly installments.
Does Your Credit Score Affect Car Insurance?
According to insurance companies, bad credit presents a higher risk to the company in many ways. However, little of this risk is actually associated with the person’s driving habits. Auto insurance companies use a credit history to assess your risk of increasing the insurer’s costs: bounced checks, missed or late payments, collections efforts and policy cancellations due to default are expensive for the insurance company.
Carriers want to reduce the potential risk to their bottom line, and one of the easiest ways to do this is by offering cheaper car insurance rates to consumers with good credit and higher rates to people with bad credit.
Does Credit Risk Equal Insurance Risk?
Although a case can be made for bad credit indicating “high risk”, there is a vast difference between you driving recklessly or unsafely and having bills you can’t or won’t pay. Auto insurance companies try to correlate the two issues, but the link is tenuous.
Many states have tried repeatedly to repeal an insurer’s right to use your credit as a factor for determining risk and insurability for auto coverage. Americans’ credit scores are worsening as a whole every year since the recession, due to job losses, mortgage defaults and rising prices and inflation, signaling that finding cheap car insurance is more important than ever.
You Are Not Alone
Since this credit crisis is a national trend, it shouldn’t surprise car insurance companies that American consumers are going through tough times that may affect their credit, but for reasons which are completely unrelated to their driving history. This trend could cause the insurance industry to eventually shift their risk profile and stop punishing those with lower credit and offer them affordable car insurance.
Although people with bad credit will never have the cheapest car insurance that those with good credit have earned, it could become possible for those with bad credit to have cheaper auto insurance, too.
Lowering Your Rates With Bad Credit
It’s impossible to change your credit history or score overnight. The only alternative is to try to lower insurance premiums by other means until the person’s credit score has improved enough to make a difference at their next policy renewal.
We suggest families try these car insurance discounts to get lower rates: increase your deductibles, drop any unnecessary coverage, take safety driving courses or driver’s education, bundle all other insurance policies with the same company and try to pay for an entire policy period up front.
All of these factors will lower car insurance premiums down and increase your good standing with the insurance company.
Compare Car Insurance Rates
Does your bad credit have an impact on your car insurance rates? Yes, unfortunately. However, it is possible to improve your credit and still save money on premiums during that process.
Comparing several car insurance quotes with MyCarInsuranceRates.com will help you find the best car insurance. Get car insurance quote comparisons to get all the information required to obtain the best and most affordable coverage and rates for your situation.
Share and Enjoy
Related Articles: