500? 650? 800? Your Credit Score and Cheap Car Insurance

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In tough economic times, everyone is searching for ways to lower their bills.   Some costs are clearly fixed, like your car payment or the mortgage on your house.   But other expenses are somewhat variable, like energy expenses (take a bus to lower fuel costs, or lower the thermostat to reduce your energy bills).   Reducing those types of expenses are relatively easy, if you don’t mind a little personal pain.   Also, a reduction in those expenses generally doesn’t depend on your credit score.

Auto insurance is different, though.   If you’re trying to get quotes for cheap car insurance or reduce the cost of your premium, your credit score does matter.   Why?

Insurers are in the risk management business.   When they assess the risk that an existing (or potential) customer presents from an underwriting perspective, a lot of factors go into the equation.   One item in that equation that can really affect your ability to get cheap car insurance is your credit score.

How Your Credit Score Affects Cheap Car Insurance

The logic goes like this: your credit score is a reflection of your commitment to personal responsibility.

If you’re habitually late in paying your bills, for whatever the reason, your credit score will suffer.   An insurance underwriter looks at this, and makes the assumption that if you’re not paying your bills on time, you’re statistically at greater risk behind the wheel because you haven’t exhibited personal responsibility in managing your financial affairs.

So, no cheap car insurance for you, right?   Not necessarily.

Managing Your Credit Score

Here are a few tips for raising your credit score, and gaining access to cheap car insurance.   Knowledge is power when it comes to your credit score:

  • Check your credit reports for inaccurate reporting.   All credit agencies allow you to contest inaccurate entries into your credit file.
  • Make sure you check all major credit reporting firms – Experian, TransUnion, and Equifax.   A bad entry on just one can affect your ability to get cheap car insurance.
  • Improve your credit score by negotiating with debtors.   Even if you have judgments in your file, negotiating a settlement can have a very positive impact on your credit rating.

While a credit score is only one factor that goes into getting cheap car insurance, it’s clearly not the only tool that insurance companies use to assess your potential risk.   Talk to your agent, particularly if you’re experiencing personal financial difficulties due to (for instance) layoff or divorce.   Simply identifying the cause(s) of a temporarily low credit score can make the difference with an insurance underwriter who doesn’t really know you.