You’ve probably heard that having good credit is important if you’re looking to borrow money. Having a strong credit score will increase your chances of getting approved for a new credit card, personal loan, or mortgage. But you might be surprised to learn that your credit score could also affect your auto insurance rates.
Now, a credit score isn’t the only factor auto insurers use to decide the premium rates people are entitled to. They will also take into account things such as the motorist’s age, driving history and the type of vehicle they have.
But make no mistake, people with poor credit could end up paying a lot more money to insure their vehicles. In fact, 92% of auto insurers take credit scores into account when determining premium rates, according to Nationwide.
If your credit score isn’t at its best and you need to insure a vehicle, it’s a good idea to work to improve it quickly. Here’s how.
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1. Pay all incoming invoices on time
Your payment history is the most important factor that goes into calculating your credit score, and therefore to increase yours, paying all bills on time is a solid bet. If you establish a timely payment history, your score is likely to increase.
2. Get rid of some existing debt
Another key factor in calculating your credit score is your credit utilization rate, which measures your existing credit card balances against your total available credit line. If this ratio exceeds 30%, your score could take a serious hit. For example, if you have a total line of credit of $ 10,000, you don’t want to keep more than $ 3,000 in credit card balances. If you go over that limit, paying off some of your debt to get back below the 30% line should help improve your score.
3. Be added as an authorized user on a long standing credit card account
Just as being a new driver can raise your auto insurance rates, being a new borrower can hurt your credit score. It is because the length of your credit history is taken into account when calculating your score. If you’ve only had a credit card for a year, you won’t do as well in this regard as someone with a credit card account in good standing for 10 years or more. The solution? See if you can be added as an authorized user on a family member’s long-standing account. This will give your credit history a boost and your overall score.
4. Correct any mistakes on your credit report
When was the last time you checked your credit report? If you can’t remember, be sure to do so before you apply for auto insurance. It’s common for credit reports to contain errors, and if yours has one that works against you, it could lower your score. You can visit annualcreditreport.com to access your credit report free of charge.
You would think that being late on some bills or having a large amount of credit card debt wouldn’t force you to pay more for auto insurance. But this is not the case. Your credit rating Is important when looking for auto insurance, so make an effort to include this number before you apply. This could translate into a lot of savings on your current premiums and make owning a car cheaper overall.