When getting a quote for auto insurance, there are a number of factors that will affect how much you pay for coverage per month, including your age, type of car you drive, driving history, where you live, and more.
While those are pretty standard, one factor you may not be aware impacts your insurance is your credit score. While insurance and credit score may not seem related, having a high or low credit score can actually positively or negatively affect your auto insurance rates.
In fact, according to The Zebra, an auto insurance comparison site, improving from one credit tier to the next, such as from fair to good, can save you an average of 17% or more per year.
HOW DOES MY CREDIT SCORE AND AUTO INSURANCE RELATE?
When you quote an auto insurance policy, insurance companies will calculate an insurance “score” to help determine your “risk,” or the likelihood an insurance event, like an accident, will occur. The higher your risk, the more likely the insurance company is to have to pay a claim, and the higher your monthly premium will be.
Insurance companies will sometimes take a look at your credit score, including the length of your credit history, number of accounts in good standing, payment history, credit utilization rate, collections accounts, and recent applications for credit.
Your credit score and insurance score help show the insurance company your ability to pay your premiums, as well as the likelihood of you making a claim. Statistical analysis shows that those with higher credit scores tend to get into fewer accidents; therefore, costing insurance companies less than those with a lower credit score.
HOW DO I IMPROVE MY CREDIT SCORE?
Responsible credit activity can help increase your insurance scores. Your insurance score can change every year, and your monthly premiums can go up or down.
To help increase your credit score, follow these tips:
- Pay your monthly credit card bill on time, and if you can, pay it off in full
- Keep your credit utilization low
- Keep your oldest accounts open to show an established track record
- Pay off other debt you oweOnly apply for and open new credit cards as needed