Tracking your credit score is smart for all sorts of reasons, and while you can usually check it when applying for a loan, it’s also a factor that determines how much you pay for car insurance.
So what is the reason for this correlation between credit score and auto insurance, and does it matter to motorists nationwide, or are there exceptions?
The reality of insurance costs
Every insurer uses a range of statistics to determine premium prices, and this applies to auto coverage, travel insurance, property insurance and more.
A customer’s credit score is just one of the factors that come into play when it comes to car insurance, and the reason is simple; people with bad credit scores are statistically more likely to have been involved in car accidents or have driving convictions on their record than those with good credit scores.
Of course if you drive carefully and your personal history behind the wheel is free of any incidents, it will all count in your favour. But even so, bad credit can still make you pay more for your car insurance.
Find the best car insurance for you
Even if you have bad credit, you can lower car insurance costs if you compare quotes using a platform like Cheap insurance.
You will find that some insurers have offers aimed at customers with bad credit, and indeed many suppliers don’t actually use it as a factor to calculate premium prices.
So, by playing the field and investigating all the insurance products available, you don’t have to worry about a big bill when it comes time to renew your car coverage.
Understanding Regional Differences
Most states, including New York, allow insurers to change auto insurance premiums based on customers’ credit scores.
However, in California and a few other places, rules have been put in place to prevent this practice.
Even in New York, there are specific safeguards that insurers must follow if they take credit score into account when calculating insurance costs. For example, customers should be notified when their credit score has resulted in a more expensive plan being offered.
Similarly, insurers are required to check for any change in credit score and revise premium prices accordingly at least once every three years.
Importantly, for car owners in New York, once you have purchased car insurance from a provider, they are prohibited from increasing the price you pay or ending the policy early based on of your credit history.
So if your credit score suffers a setback and you’re halfway through your insurance period, it won’t hit you in the wallet.
Improve your prospects
If you don’t like the idea of moving to an entirely different state to save on your car insurance, then improving your credit score is your best bet.
Again, many factors go into determining this, and the biggest influence is your repayment history.
Missing repayments on personal loans, mortgages, and credit cards will hurt your credit score. Conversely, if you consistently meet payment deadlines and don’t drop the ball, you will be rewarded with an improved score.
The amount of debt you hold is also relevant, although as long as you pay off the total it will actually benefit your score.
Ultimately, it’s about showing you’re a responsible person, and it’s perhaps the most telling reason auto insurers charge more if a customer has a low credit score in their name.
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