How your credit score affects your car insurance rates

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How your credit score affects your car insurance rates
2 years ago
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Are you looking into buying a new auto insurance policy? Then perhaps you have just bought a new vehicle, the car of your dreams, and you need to protect your investment in it. Or, perhaps you only want to switch providers because of dissatisfaction with your current insurer. Either case, you must be searching for a more comprehensive car insurance plan. And regardless of your reason in purchasing a new policy, your credit rating will affect your car insurance rates. The insurance company will refer to your credit score when determining the premiums for your policy.

Your Credit Rating Can Increase Your Purchasing Power
Your credit rating is often used by banks and other lending institutions, as well as service providers, in determining the possible risk they face in having you as a customer. Generally, a low credit rating is indicative of a high risk borrower and vice-versa. Thus, if you have a poor credit rating, potential lenders or service providers may have second thoughts about your application or even deny your request because they may think that you cannot be relied on to make prompt payments to your debts. In effect, a low credit score can greatly diminish your buying power. Similarly, your car insurance rates are largely dependent on your credit rating. If you have an excellent credit score, you can expect your car insurance to be much cheaper than those who rate poorly in their credit records.

The Link Between Car Insurance and Credit Score
The setting of premium rates by insurance companies is directly related to credit ratings. A person with a low credit rating is required to pay higher premiums than another driver with a better credit score. To illustrate ??suppose there are two drivers, Driver A and Driver B, who approach the same car insurance company to buy identical policy coverage. However, they will not be paying the same amount of monthly premiums if Driver A has a high credit rating while Driver B has a poor credit rating. Driver B may end up paying about $150 more than what Driver A will pay simply because of Driver B's undesirable credit rating.

If you compute the amount Driver B will be paying in excess of what Driver A will, that translates to $1,800 more in premiums over a one-year period. It is an expense that could have been avoided if Driver B had exhibited more responsibility with his credit. With that, you should realize the impact of your credit rating when you choose to apply for a car insurance policy, how your poor credit score will put you at a disadvantage.

Not all may do it but most car insurers determine the amount of premiums that must be collected from policy holders on their credit ratings. The practice may have basis on studies that show a close correlation between a person's credit score and his likelihood to figure in an accident. According to statistics, people with poor credit history also have poor driving history where they met more accidents and filed more claims than those with excellent credit scores. And you know very well that in the insurance industry, the higher the risk, the higher the premiums. The system is perfectly legal in most states and the car insurance companies have devised a way of calculating a person's insurance score based on the credit rating.

Purchasing car insurance policies is very much like buying any other types of service or product that you would wish you'd have the upper hand. Things are much easier, and a lot cheaper, if your credit rating is good. You should realize by now that a sterling credit report can open the doors to great opportunities. That said, you ought to exert every effort to improve your credit score if yours is currently in the low levels. Strive to re-create your credit record and make it impressive this time around.
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