As you probably well know by now, there are many different factors that can play a role in how much you have to pay for your auto insurance premiums. From the type of car you drive to the age of the drivers in your household, these factors can mean the different of hundreds of dollars each and every year in auto insurance premiums. In some states, even your credit score can be a factor in determining how much you pay.

How it’s used

Auto insurance companies try to look at factors that increase their risk and then adjust your premiums accordingly. There are some in the auto insurance industry who believe, for example, that a poor credit score is usually associated with a situation of greater risk. While there is controversy and disagreement as to whether this is actually the case, the industry seems pretty committed to the idea.

If you have a poor credit score, the insurance company considers you to be a higher risk than someone who doesn’t. Therefore, you might have to pay more for your premiums. In some cases, this can be an additional 20 percent or even more.

Some folks don’t have to worry

The practice of using the credit score as a factor in your auto insurance premiums, while widespread, isn’t universal. In fact, some states have actually made that practice illegal. There is also talk at the federal level about legislation that would forbid insurance companies from using credit scores or other credit information as a part of the premium assessment process, but so far nothing has come of that.

How to protect yourself

The best thing that you can do, of course, is to keep your credit score up if you live in a state where insurance companies factor it into your premium costs. That’s often easier to say than it is to do, of course. However, there are a few basic things you can do in order to keep your numbers looking good:

• Pay your bills on time, all the time. That’s the most basic credit advice there is, but it’s also the most powerful. About a third of your credit score is based on your bill-paying history.
• Watch your debt ratio. Your debt ratio is the ratio  of debt you’re carrying when compared with your credit limits. The lower your debt ratio, the better your credit score. Ideally, you’ll want to keep that ratio at 30 percent or less.
• Don’t apply for new credit too often. Whenever you apply for a new credit card or loan, the lender does a credit check. Each time this happens, your credit score drops a little bit. If you do it a bunch, your credit score can drop significantly.