Yes, it’s true. Most car insurance companies use your credit score to determine your insurance premium. While credit score is not the only factor involved in computing insurance premiums, it is used to establish an insurance score: a very important element of the overall risk package for each insurance applicant.
The insurance score is based on your credit score, and is determined in alignment with studies that have proven that drivers with better credit scores are less likely to be involved in an auto accident, reports CreditKarma.com. Higher credit score owners also historically have proven to submit lower claims when they are involved in a collision.
What factors can negatively affect my credit score?
Credit scores, and therefore insurance scores, are affected by multiple sources of data. The following factors can contribute to lowering your credit score:
- collection accounts;
- a high debt ratio (meaning you’ve maxed out your credit cards);
- a history of past-due payments;
- a limited credit history (you have little to no credit);
- numerous credit inquiries.
What factors can positively affect my credit score?
By paying your bills on time and limiting the amount of credit you use, you can increase your credit score, and may help you lower auto insurance rates in the future.
These factors may raise your credit score:
- having open accounts that are in good standing;
- having accounts with remaining credit limits that you haven’t used;
- a history of on-time payments;
- few credit inquiries; and
- no collection accounts, or closed and paid collection accounts (these will eventually drop off your credit report, but it takes time).
The Fair Credit Reporting Act (FCRA) gives you the right to obtain a copy of your credit report. If you are experiencing high auto insurance premiums and you expect that your credit score is to blame, you can request a copy of your credit report from the three major credit bureaus (Experian, TransUnion, and Equifax).
Review your credit report and identify any erroneous information. If you have erroneous information on your credit report, you can request that it is removed. In addition, you can begin to repair your credit once you know what factors are lowering your score. Pay off any old, past-due debt and pay down high-balance credit cards. Pay off any collection accounts as well.
How can I lower my auto insurance rates?
As noted above, work on improving your credit score. While you are in the process of raising your score (it takes time), you can explore other insurance providers to see if you can find a lower auto insurance rate.
Some insurance companies give more weight to factors such as driving record or claim history when calculating premiums. If you have a good driving record and limited claims, you may be able to find lower auto insurance premiums with another provider.
Call the Law Office of D.J. Banovitz
The Law Office of D.J. Banovitz specializes in helping people who have suffered injuries in an auto accident in and around the Arvada area. If you need legal help associated with an accident or injury, call (303) 300-5060 to schedule a free consultation. A qualified attorney will review your case with you.