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How Do Insurers Use Credit to Determine Rates?
Car insurance providers have access to your credit report. So they know if you make your credit card and loan payments on time. Of course, if you’ve been with them for awhile, they also know if you pay them on time. Being financially responsible and making on time payments could lower your insurance rate. The more reliable you are about making your credit and debt payments, the more trust insurance providers have that you can pay their bills on time as well.
Some studies also suggest people with higher credit scores are less likely to get in accidents that lead to claims. So you can enjoy a less expensive premium. While one forgotten payment might not make a huge difference, a pattern of late payments could change your rate dramatically.
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Does Paying Bills on Time Really Help Your Credit Score?
While you don’t boost your credit rating by paying your bills on time, the opposite may have an effect. Not paying your bills on time, particularly if it is an exceedingly long period of time, could lead to the provider reporting you to a collections agency, which can damage your credit. Your payment history is one of the foundational parts of your credit score.
So how does it affect your car insurance? If you don’t pay on time, you could be charged late fees, or your auto insurance could be cancelled. Then you’d have to pay a reinstatement fee.
More importantly for some drivers, non payment or late payment can give insurance companies a reason to pull your motor vehicle report. If you have any new tickets or other small things that may show up on your motor vehicle report, these could be factored into your premium.
How Can You Get The Best Insurance Premiums?
Even if you’re satisfied with your current insurance company, it never hurts to check your options by getting other quotes. Credit based insurance scores can hurt you. If you’ve made significant improvements to your credit, it could also help you.
Once you choose an insurance company, one of the best things you can do is make your premium payments on time. You’ll see your insurance rate naturally drop if you also keep a clean driving record regardless of what your credit score looks like. If you improve the numbers to eliminate bad credit, you’ll also qualify for better rates with other insurers should you choose to switch.
If you’re interested in a new policy or just seeing what rates you qualify for, talk to an insurance agent. They can check your credit profile once. If you have an excellent credit score, one hit won’t have a significant impact on your score.
An insurance agent may have connections to companies that can help you fix your bad credit rating. More importantly, they can provide multiple options and answer questions you may have while advising you on which path may be right for you.
Ultimately, the choice is yours where you go. An excessive claims history and other factors will follow you, but different insurers look at the same factors in different ways including positive payment history. You may choose your insurer based on price. Some make their decision based on customer service, the claims process, and more.