There is a reason why buying a car is not a decision to be taken lightly. There are many costs associated with owning a vehicle that extend well beyond your car loan payments. These include maintenance, parking fees (depending on where you live), and car insurance.
When it comes to buying car insurance, several factors can lead to higher premiums. Being a new driver, for example, could leave you with higher premiums because insurers may think your lack of experience puts you at greater risk.
Likewise, a driving record loaded with on-the-move violations could make car insurance more expensive for you. If you have a history of speeding, it’s easy to see why an auto insurer might charge a higher coverage rate.
But while these factors can be obvious reasons for higher auto insurance bills, there’s another lesser-known factor that could drive up your costs: your credit score. And if your score is bad, you could find yourself stuck paying for a car insurance policy.
Why do auto insurers care about credit scores?
When you’re borrowing money to buy a car, it’s easy to see why an auto lender might check your credit. After all, this lender wants to be repaid, so they need to see how much of a loan risk you represent.
However, when you buy car insurance, you are not borrowing money. Instead, you pay money in exchange for a service. As such, you wouldn’t think your credit score plays a role in the premium rates presented to you.
Car insurance companies in some states can consider your credit score to determine the rate to charge, although this practice is prohibited or restricted in some parts of the country. While your credit score isn’t the only factor insurers use to make this decision, bad credit could lead to higher premiums.
If you’re thinking of buying a vehicle soon, it’s worth working to boost your credit score. This could not only help you get a more competitive rate on a car loan, but also potentially save money on car insurance.
How to increase your credit score
You can take different steps to increase your credit score. First, read how credit scores are calculated. This information alone could help you make smart decisions that lead to a better score.
One of the most important things you can do to boost your credit score is pay all your bills on time. Also, if you have a lot of credit card debt, reducing your balances could help improve that number.
It’s also beneficial to check your credit report and make sure it’s free of errors. If your report lists a late payment that you actually made on time and you correct that error, it could cause your score to rise substantially.
You would think that your bill paying and borrowing history would not affect the car insurance costs you are charged. But now that you know your credit score could play a role in determining your premium rates, you can take steps to increase them and make owning a vehicle less expensive.
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