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My Credit Affects My Car Insurance Rate?
You probably know that lenders use information in your credit
report to determine if they'll give you credit. But did you know
that in some states, insurance companies also consider your
credit history? Good or bad, your credit history may affect your
ability to purchase homeowners or auto insurance coverage and
help determine what premium you'll pay.
For example, consider these scenarios:
Two years ago, you were unemployed for six months. Before you
could find a new job, you fell behind on several credit card
payments. Now your auto insurance rates are going up, even
though you've never filed a claim against your policy.
You've always paid your bills on time, and you've always paid
cash instead of applying for credit. Why could this be a
problem? Similar to when you apply for a mortgage or credit
card, your lack of credit history means you're an unknown
quantity - there is no history of monthly credit card payments.
Many people believe that only their driving record is
important, but that's simply not the case. The majority of auto
insurance companies consider credit to be a very important
rating variable.
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.
For more information about auto insurance please go to: http://www.insurance.com/Auto.aspx>Insurance.com
Please note that this description/explanation is intended only
as a guideline.
About the author:
None
Written by: Rob Sliver
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