For years car insurance companies have used your credit history in order to help them determine the likelihood that you will file a claim on your car insurance. According to studies like the one conducted by the industry group, the Insurance Information Institute, drivers with low credit scores tend to file 40% more insurance claims with their car insurance companies.
It is estimated that those with poor credit scores can find themselves paying anywhere between 20% and 50% more for insurance than someone with better credit.
How Much Does Bad Credit Affect Car Insurance?
No one knows for sure how bad credit affects car insurance premiums for individuals. That is because car insurance companies keep it a secret. While most experts have a guess as to how the rates are calculated and what makes them go up, car insurance companies work hard to keep their exact formula a secret.
Each car insurance company has its own separate proprietary algorithm that helps them establish your car insurance rates based on a variety of factors such as your driving history, your creditworthiness, the type of car you drive, where you live, and a host of other factors. So, does bad credit affect car insurance premiums? Unfortunately, the answer is yes.
Many people do not feel that it is fair, but insurance companies and academic studies have shown that there is a direct correlation between the likelihood that you will file a claim against your car insurance and how poor your credit score is. Those individuals with poor credit scores and a history of not paying their bills on time are often faced with higher car insurance premiums than customers with stellar credit.
How To Improve Your Credit Score
There are several steps that you should take that will allow you to improve your credit score. First, you should purchase your FICO Score which is the only credit score that matters.
It is the credit score that over 90% of lenders and insurance companies use when determining your credit history and the likelihood of your repayment. It is the only one that you should concern yourself with, and it is the one that you should address if there are issues with your credit report and credit score.
Once you have your credit score, you should pull your credit report to ensure that there are no errors in it. Recent studies have shown that almost 70% of all credit reports have some type of errors on them. Fixing them can lead to a quick boost in your credit score and can potentially lower your car insurance premiums.
Your Credit Score Is Better, Now What?
If you are monitoring your credit score and it is improving, now is the time to contact your insurance company. Many car insurance companies offer discounts for good credit.
I called mine to verify that I was receiving the proper discount on my car insurance with my insurance company, and I was told that it was factored into my rate automatically each time my policy is renewed, every six months for me.
So, you should call your insurance company for a new premium rate if you have received an increase in your credit score lately. If your company will not adjust your rate or wants you to wait six months, consider shopping around for better rates thanks to your increased credit score with another car insurance company. Greenslips.com.au is a resource for people seeking information about purchasing a green slip.
You work hard to have a good credit score. You should be rewarded for that great score with a lower car insurance premium. Be sure to ask your car insurance company for a discount or maybe now is the time to look for a new car insurance company that will give you the great rate you deserve on your car insurance premium for your good credit.