November 4th, 2013
There are several factors that can influence your car insurance rate such as your driving history, but did you know your credit score might determine how much you pay each month? Insurers use your credit score to see how well you pay your loans and the likelihood that you will pay on time. A higher score can mean a lower monthly payment. For insurers, a lower score can mean a higher risk and greater likelihood you will file a claim, so they have you pay more to cover the added risk. Fortunately, you can raise your credit score and end up with a better rate by reviewing your credit history and paying off debt.
How to improve your score
Before you buy car insurance, check your credit score. Many credit scores can contain mistakes that can affect your payment rate. Credit scores are calculated by adding several factors of your history and spending habits. Payment history makes up 35 percent of your credit score - the largest portion - and is lowered by late payments. It's important to make sure your payment history is correct in your credit report. If there is a mistake, discuss the error with your credit bureau to get it removed. If you do have some bills that weren't paid quite on time, you can still improve your score by paying every future bill by the due date.
Another part of your credit score is the amounts you owe and the type of credit you have. If you have several credit cards, the first thing you need to do is figure out how much debt you have and the amount of interest you are paying. Your credit report is a good source for figuring out your debt. Use this to make a list of what you owe and start a payment plan to reduce the balance, paying off the accounts with the highest interest rates first. To keep your balance low over time, it can be better to use cash or debit to pay for items instead of borrowing with credit. Opening more credit cards can also affect the amounts owed, and you should aim to only have a few credit cards instead of several. However, it can be just as bad for your credit score to close extra cards without paying off the balance first.