Car insurance quotes and your credit score are for obvious reasons related, but also your current premium might be revised based on this very indicator: If you have had a large sudden rate increase in the cost of your car insurance but you haven’t had a ticket or accident, you may be surprised to find out that your car insurance increase may be because you have had a drop in your credit score. Through the world-wide economic upheaval, millions have had their credit ratings adversely affected because they’ve lost their job, home, or had a medical crisis. On top of those losses, you may also have to pay more for the same insurance coverage.
Statistical Relation between Credit Score and Insurance Rates
While having higher insurance bill seems unfair, insurance companies have statistics to back up their increases to those drivers with poor credit scores. Insurance companies have accumulated data on millions of drivers, including data on how well people pay their bills on time. Based on statistics gathered by insurance companies, car insurance companies have discovered that your credit history correlates with good driving habits. Insurance companies have found that when you pay your bills on time, you are less likely to be in an accident are a better risk than another drive with the same age and driving history but who has poor credit. A credit score of below 600 is considered poor and may cost you higher insurance rates along with higher interest rates.
Your credit score number is not the only item considered on whether to raise your rates. Each insurance company has their own method of reviewing your credit history and determining whether you are a good or bad risk. Some companies may increase your rates if you’ve been declined for credit more than twice in a year or have had too many credit inquiries on your account.
Measures and How to Keep Your Insurance Rates Low
If your insurance rates have recently increased and you haven’t had an accident, ticket, or change to your policy, you should:
- Check your credit report. Everyone is entitled to one free copy of your credit report each year. (See the Federal Trade Commission’s website for your free credit report at www.AnnualCreditReport.com.) Review your credit report for negative information and see if there are any errors or reports on transactions you had nothing to do with. If you find them, contact the credit reporting companies (Experian, TransUnion, and Equifax) to clear the information off your credit report. Check out information on the FTC’s website, www.ftc.gov, for information on how to remove erroneous information from your credit report and identity theft.
- Some insurance companies are willing to consider exceptional circumstances that would cause them to ignore or downgrade the effect of your credit history on your car insurance costs. If you lost your job by layoff or bankruptcy of your employer, a medical crisis in your immediate family, or other special one-time events in your life, ask your car insurance company if they can ignore your credit history based on your one-time financial disaster.
- Shop around! Some car insurance companies will consider your credit history as a bigger factor in your cost of car insurance – and some do not. Find an insurance company that will focus on your good driving history, not a fluke in your credit.
- If you are applying for credit cards, be careful as to how many applications you send out. If you are turned down for credit more than once or have had many credit inquiries, insurers perceive that you are engaging in risky financial behavior – which implies risk to insurance companies. Don’t apply for credit right before you apply for or renew your car insurance policy. Get your real rate locked in and apply for credit after. Any inquires may fall off your credit report by next year when you need to renew your policy.
- You may also be able to avoid car premium increases based on your credit score if you pay your car insurance premium for the year in full rather than paying each month. Check with your insurer if your negative credit score will be set aside or ignored if you provide payment in full for your annual car insurance.