Credit score is one factor used to determine your insurance risk score which companies use to assess how likely you are to file a claim. Your insurance premium is derived from your insurance risk score, which means that if your credit score is low, your monthly premium will most likely be higher than average. A person with a lower than average credit score can expect to see auto insurance rates as much as 50% higher than the average person, while a better than average credit score can earn you savings of more than 20%. Critics argue that placing undue weight on how credit score and auto insurance rates interact puts unfair pressure on members of the working class who may already be struggling to pay their monthly bills. However, insurance companies respond that the relationship between finance and driving habits is irrefutable and must be taken into account when considering a client’s potential risk factors.
How Can My Credit Score and Auto Insurance Rates Lower My Monthly Payment?
Credit score plays a large role in determining your insurance risk score, so in order to use the relationship between credit score and auto insurance rates to your advantage, you should strive to keep a high credit score. You can improve your credit score by paying off loans, reducing the amount of credit cards you own, and making all payments in full and on time. If you have more than two loans, pay them off as quickly as possible. Insurance companies may give you a rate significantly lower than average if they see that your credit score is very good.
Taking charge of your finances means using credit responsibly which has a tendency to spill over into other areas of responsibility. By spending wisely, you can not only save on late fees and high interest rate credit cards, but on monthly insurance premiums as well.