High car insurance costs? Your credit score could be to blame.
But what does credit score have to do with car insurance?
A lot, it turns out. In states from coast-to-coast, your credit score is one of the biggest influences on what your premium will be. Some states have banned the practice, but it is still flourishing in most of the country.
Before you look for auto insurance for bad credit, it’s wise to know what you’re up against.
Why Is Car Insurance So Expensive? Credit Can Be the Culprit.
Your credit score, also known as your FICO score, is a numerical estimate of how financially responsible you usually are. The score used for most consumer purposes ranges from 350 to 800, though specialized scores are used in some situations.
Standard credit score ranges include:
- Poor: 300 to 579
- Fair: 580 to 699
- Good: 740 to 799
- Excellent: 800 to 850
There’s no way of knowing precisely how much your credit score adds to your monthly premiums. Car insurance companies keep that under wraps, and for good reason – it can open them to charges of discrimination. That’s part of the reason some states have turned against the idea.
In general, though, it’s understood that the lower your score, the more you pay. While the average person only needs a “Fair” credit score to qualify for a mortgage, it’s likely your premium goes up for every point below 850.
If you’re someone considered to have “bad credit,” that can really add up.
Every time you engage in a financial transaction affecting your bills or credit, that information is collected by the major credit reporting bureaus: Experian, Equifax, and TransUnion. These companies stockpile an enormous amount of sensitive data about Americans, and have been targeted by high-profile hacks in the past.
The lower your credit score, the more risk you represent to a lender. In other words, your credit score is really a rating of “how likely” you are to pay back loans, credit, and other financial obligations. Car insurance companies are in the business of judging risk, so it’s no surprise they take this to extremes.
In addition to your credit score, insurers look at many other factors:
- Your age and gender
- The kind of car you drive and the safety features it offers
- Your driving record, including any past traffic infractions
- Whether you have any special defensive driving training
- How many car accidents occur in your area in a year
- Severe weather events that can raise car insurance claims
- The number of uninsured drivers estimated in your area
Of all these things, your credit score is one you have direct influence over. Unfortunately, it can take months to raise your credit score. If you have a past bankruptcy or even one delinquent bill, it could take longer.
But that doesn’t mean you should just give up. Building your credit score is a terrific long-term strategy.
Got A Year? Raising Your Credit Score Can Help You Save Money On Car Insurance.
Boosting your FICO score means you won’t have to worry about auto insurance for bad credit later on.
It takes longer, but it can be the best move in the long run. After all, your credit score doesn’t just affect your car insurance. It also impacts your ability to get loans, including mortgages, car notes, and all the rest out there.
Key factors in your credit score include:
- Whether you pay your bills on time, including at least the minimum on credit cards
- How much credit you have available to use versus the amount you’re already using
- How long you’ve held credit, dating back to the first credit account you opened
- New applications for credit, including most credit checks that lenders perform
Of those, the first two are the ones most people worry about most on a daily basis. They are also among the most influential. Raising your credit score is a matter of sticking with a few financial good habits.
Remember, your income does not affect your credit score. It is solely based on your relationship to creditors.
How much can you raise your credit score in a year? Estimates vary, and it all depends on where you start. But it may be possible to raise your credit score 50, 100, or even 200 points after a year of focused work.
Five Ways To Save More In The Long Run Through Good Credit Score Practices
Upping your FICO score could mean the difference between a long search for auto insurance for bad credit and getting a more budget-friendly standard policy. It can also help you reduce the amount your premiums go up.
Here are some ways to get it done:
1. Start With A Budget
Any savings goal should always start with a budget. A budget allows you to see any easy ways that you can save money. Then, you can apply your savings to the credit cards and other bills you want to pay off. Those early wins can get you off to a stellar start.
2. Pay Off High APR Credit Balances First
Annual Percentage Rate (APR) represents the amount you pay in interest on your carried credit card balances from one year to the next. Paying off high APR balances means you will end up spending less on interest and more on principal, potentially saving hundreds of dollars.
3. Don’t Close Existing Credit Accounts
Many people are tempted to close their existing credit accounts once they are fully paid off. While this makes sense from a “willpower” perspective, it will only harm you when it comes to your credit score. That unused credit actually helps you raise your score faster.
4. Don’t Take On New Accounts
Taking on new credit accounts, on the other hand, exposes you to a lot more financial risk. First, the credit check will negatively impact your score. Then, it might take months to pay off a new balance. It is much more sensible to wait until your score rises, helping you get better bargains from lenders later on.
5. If All Else Fails, Consider Bankruptcy
This one is a bit counterintuitive. Declaring bankruptcy will significantly reduce your credit score for around seven years. But it can be the best course of action if you find yourself with too much debt to handle. Hundreds of thousands of Americans use this approach to get a fresh financial start every year.
The Easiest And Best Way To Find Affordable Auto Insurance For Bad Credit
When you need auto insurance for bad credit, there’s only one way: Compare car insurance quotes online.
By comparing auto insurance quotes from as many providers as possible, it’s simpler to find the affordable auto insurance for bad credit you want. Cheap Insurance streamlines the process: You have the power to compare car insurance from all the best insurance companies. Our accurate, up-to-date quotes help you save more money.
Credit score is a marathon, not a sprint. If you discover a good deal on auto insurance today, it will mean more money you can put toward your other obligations tomorrow. Before you know it, you might qualify for the best auto insurance deals around!
Also, Read: Car Insurance for a Bad Driving Record