We all know that bad credit leads to higher mortgage and auto loan payments, but did you know that auto insurance companies often consider credit histories when calculating insurance premiums? If you have a less-than-perfect credit history, it's likely that your insurance company considers you a risk behind the wheel.
You may be a safe driver, but your past spending habits could send a different signal. Take matters into your own hands and work on cleaning up your credit. Not only can it help you qualify for certain necessities in life, but it can also put money back in your pocket when it comes to lower auto insurance premiums.
The insurance industry considers several factors when determining how much to charge an individual for auto insurance including: age, gender, car type, crash history, geographic area and credit histories. An insurance score based on credit history gives the insurer a measurement that indicates how well the individual has managed his finances. The theory is that a person with reckless spending habits and loads of unpaid bills could take other risks in life - even when driving.
The Fair Isaac insurance score measures a set of credit characteristics, assigning a weight to each one. These scores are tallied to produce a final insurance score between 100 and 999. According to the Insurance Information Institute, those with good insurance scores, about 760 or above, tend to file fewer insurance claims than those with bad scores. Thus, insurance scores are used to predict risk and are usually considered when pricing insurance policies.
While paying more for insurance because of bad credit seems unfair, the insurance score pricing model has been studied extensively and isn't likely to disappear. The best move at this point is to take a serious look at your finances and start improving your credit. Here are a few positive steps to take:
Improving your credit and insurance scores take time and effort, but it can directly impact the amount you pay for auto insurance. Cleaning up your credit is one of the best financial moves you can make.