How Your Credit Impacts Your Auto Insurance Rates
Did you know there is a new law in place that allows auto insurance companies to use your credit rating when determining your rates? This little auto insurance nugget slipped under many people’s radars when it was introduced. The auto insurance industry is using your credit info to derive a few conclusions about you.
Credit shows how on the ball you are for paying
You maybe on the ball for paying all your bills, but your auto insurance company have no idea that you are so diligent. Your credit score is a key-determining agent in telling many companies how well you pay your bills.
Auto insurance companies can even dig into your credit history to reveal items like bankruptcy, collections, foreclosures, and other financial information. That’s right, your insurance company can dive right into your credit report when figuring out your rates.
Higher credit generally means you’re a safe bet
People with higher credit ratings are usually older. Rocking an excellent credit rating takes years to build up. Just as new drivers have higher insurance rates, new people to the credit score game will have lower credit scores.
This may seem unfair, but keep in mind there are various ways to pump up that credit score. The auto insurance company is really just using your credit score as a number in a large rate algorithm. Even if you do not intend to use your credit score to secure vast amounts of credit cards, use it to drop your auto insurance rates.
Credit score dictate your ability to pay in an accident
The worst idea on a credit score is how well it ties into your ability to pay in an auto accident. Auto insurance companies believe that people with higher credit scores are more apt to pay the bill. Top that off that when the rates go up after an accident, people with excellent credit are viewed as more capable of paying the higher rates than those with low credit scores.
Your agent owes you no explanation
The biggest hindrance to your auto insurance rates is that your agent does not have to divulge any info on how your credit score plays into your rates. Some agents may honestly have no idea how your rates are impacted by a high, or low, credit score.
Shopping for auto insurance for the best rates will also teach you a fair amount on your credit scores. This is because each insurance company will use your credit ratings in different ways. Some companies may dive deep into your credit history. Other companies could care less about your history and just want your credit score. It may seem unfair for a company to use a late payment from five years against you, but auto insurance companies are now able to do just that.
You now have even more reasons to watch that credit score closely. This may not seem fair to many consumers, especially those that pay cash for a majority of their purchases. Maybe it is time you get that credit score in order to keep those auto insurance rates low.