Car Insurance and Helpful Credit Scores

Credit reports and credit scores are generally linked with loan approvals. However, there is much more to the three-digit FICO score than gaining approval for an auto loan, credit card or mortgage. For example, credit scores are now being factored into auto insurance premiums as well. This makes it important for car owners to understand the role of having a good credit score—especially while going in for a car insurance. Read on for a closer look at credit-based insurance scores and why you should repair your credit score for more than just better interest rates on loans.

The role of Insurance Score


Insurance providers typically base their premium rates on the insurance score. Along with taking the consumer’s credit history into account, insurance score also predicts the likelihood of the consumer filing an insurance claim or being involved in an accident. In other words, the credit history is capable of being linked to accidental potential and other risks as well. Federal Law has laid down certain regulations for car insurance companies that tend to offer less favorable terms for their clients, those with poor or no credit score at all. They need to inform consumers of the address, name and contact details of the reporting company that helped them retrieve the score; along with providing them an insight about their scores.

A good insurance score is important for you to qualify for lower auto insurance premium. This premium considers the amount of claims on record and your driving history as well.

Lower Credit Scores=Greater Car Insurance Premium


If you happen to have a low credit score, then you are expected to pay more for your car insurance premium. This is because you are likely to achieve a lower credit-based insurance score. In most cases, drivers in the US have been found to pay up to 80 or even as high as 126 percent more premium for the same coverage; than those having excellent credit scores. The States with the biggest percentage difference premiums are Wyoming, District of Columbia, Indiana, Michigan, South Carolina, Maine, Ohio, Minnesota, Louisiana, Kentucky and so forth.

Effective Ways of Improving the Credit Score


It is not very difficult to bring about improvements to your less than stellar scores for auto insurance purposes. These simple but effective tips serve to help the cause.

Ensure timely payments: It is important to make sure that you make your payments on time. This allows you to open up new credit lines with a good standing. Having a favorable credit history, with no missed payments or collections, is very important too.

Good debt management: It is best to accrue no more than 30 percent of the total credit line at once. This ensures a better management of your debts and allows you to take effective measures to get your overall finances in order. This leads to a better credit score, better interest rates on loans and lower car insurance premiums as well.

Ratio of revolving credit: It is important to keep a track of the revolving credit that is allowed to you and the amount that you are actually using. To get a better credit rating, you need to keep this ratio at the minimum or aim for an optimum 10 percent or lower. One of the best ways of boosting the credit score is by having low balances and looking for a credit card issuer that is willing to accept multiple payments from your end, across the month.

Eliminate small balances: You can also improve your credit score by eliminating the small balances that you may be having on a number of credit cards. So, instead of charging $30 on one card and $50 on another, consider gathering all the cards and paying them off as soon as possible. After that, select a couple of go-to cards which you can utilize for everything. This will enhance your credit report and insurance score alike. Last but certainly not the least, negative items prove to be bad for your scores, so you need to handle your debt smartly and pay them off as agreed and in good time. A solid repayment record brings positive changes in your credit score and helps you get lower car insurance premiums than you may expect.

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