It’s a well-known fact that your credit score will affect your chances of getting a loan to buy a car, getting a mortgage on a new home, or even just getting a credit card from a major department store. What not all consumers are aware of is the fact that the status of your credit score can determine how much you pay for auto insurance. It’s not always discussed when you apply for car insurance, but the insurance company will check your credit history before determining whether or not to sell you a policy. Also, if you are in the habit of paying everything in cash and therefore have no credit history, this can be a problem.
Most people know what insurance companies base their determination on when issuing an auto insurance policy. These factors are your age, driving history, the make and model of the vehicle you are insuring, and your insurance claim history. Also, insurance companies may use your credit history as a factor in whether or not to insure you and the cost of your policy. Of course, this depends on whether the state you live in allows the use of your credit report. Insurance companies view someone with a clean credit report as a responsible, stable person who is less likely to have an accident. They also assume that a responsible person will always pay their insurance premiums in a timely manner.
A clean credit history will mean that you will not only be issued a car insurance policy, but will have a lower premium. If your credit history is littered with late and unpaid payments or you have no credit history, you will have to pay higher premiums for your auto insurance. There is even a possibility that they will not accept you at all. If you find yourself in this position, the first thing you should do is request a copy of your credit report from the same credit bureau that the auto insurance company used. If you find that there is incorrect information on the credit report, you should contact the credit bureau and try to correct it.
Some of the information on your credit report may require some work on your part to clarify. If you have outstanding balances on credit cards or department store accounts, etc., you should start paying at least the minimum amount due each month. Also, you could try to put your high interest credit cards on a lower rate card if possible. The main thing is to stop spending money you don’t have until you pay what you owe. If you find yourself in the position of having no credit history at all, it is important to obtain it. This lack of history can be fixed by applying for a low-interest credit card or store credit card and then making payments on time and without overcharging. So you should get in the habit of reviewing your credit report annually. Credit reports are free, and you should get a report from each of the three credit reporting companies, as they may not all have the same information. After clearing up your credit history, insurance rates should be more reasonable.