June 1, 2010

How Your Credit Score Affects Your Auto Insurance Quote

You have a car that needs insurance coverage. You understand that in most states, auto insurance is mandatory. However, sky-high auto quotes send you into a fury. You do not understand the reason behind this. It's simple: your auto insurance quote is affected by your credit score. A review of your credit score for vehicle insurance can either hurt or help your wallet.

In the eyes of the insurance company, bad credit means you are irresponsible with money, and in effect, are an irresponsible driver. Also, they figure drivers with low credit scores have more accidents versus someone with good credit. This notion triggers down to paying a higher auto insurance premium, for drivers in such predicaments are viewed as high risk.

On the other hand, people with good credit are perceived by insurers as reliable. They reason that this group of people will cost the insurance company less money because their responsible behavior prevents fewer claims from being filed. Thus, they reward these customers with lower auto insurance premiums.

So, all things consider, your credit score – good or bad – plays a major factor in your auto insurance premium.

Any financial obligation credited to your name is listed on your credit report. This includes any financial crisis you may have encountered such as foreclosures, bankruptcies, tax liens, collections, and garnishments. All of this financial information shapes your credit score – which determines your auto insurance quote.

Auto insurance companies review your credit score to create what is called an insurance risk score. This insurance score determines your likability for filing a claim. Again, your credit determines the outcome – in this case, the price of your insurance premium.

Good credit is actually a money saver with auto insurance. And if you don't have it, there are things you can do to improve your credit score. For instance, keep your credit clean by paying your bills in a timely manner and keep your credit card balances low. Also, do not overload yourself financially. Too many financial obligations can lead to financial debt. This eventually causes late payments on your bills - dragging down your credit score.

Most times credit reports are accurate; however, occasional mistakes do happen. If this occurs to you, contact the credit bureau immediately for corrections. Make sure that your name, address, date of birth, and social security number is correct on this information. After this information is corrected, be sure to request that the credit bureau send an accurate report to you and the insurer.

With this advice, you can benefit from good credit. Insurers will gladly take care of you having taken care of your credit.