Car Insurance and Your Credit Part 2
written by Credit-HQ ExpertHow It Works
Insurance companies are not just being nosey. There are scientific studies that show that in general there is a connection between strong or weak credit and the possibility you will file a claim on your insurance. If you have good credit, the implication is you know how to manage your affairs which means you are probably a better driver than if you are not as good managing your credit.
Also, insurance companies speculate that if you have a bad credit, you may have a lot of stress in your life, which may impact your driving skills. To you and I, this seems like a goofy connection. But whether we like it or not, it is a variable that car insurance companies take seriously.
Improving Your Risk Score
Knowledge is power, as they say so just knowing this information may help you in how you approach your insurance picture. If you have poor credit at the moment, this may be a bad time to switch insurance companies. But the real answer is to improve your credit score, which will make your auto insurance picture much brighter. Some factors you can work on right away are…
- Pay your bills on time. Naturally, insurance companies get nervous if you have a bad payment history because they want their premiums paid on time. By building a history of making your payments on time, you improve your profile with your auto insurance company.
- Reduce the number of open credit accounts. Debt consolidation can help with this plan. Your credit situation looks worse if you owe money to a lot of credit institutions.
- Length of credit history. How long you have been a good customer of various credit institutions can help your score. Of course, you cannot affect that immediately. But you can limit how much you apply to new credit sources and keep your credit uses confined to the credit accounts you have. That is healthy credit activity in the eyes of the credit bureaus.
- New accounts. Any recent activity that you generated opening new accounts could cause your insurance rate score to dip. By being careful how many new accounts you apply for, you do your credit score a favor.
- Account balances. So pay down your accounts but keep them open and active. That looks good on your credit history, which eventually looks good even to your car insurance company.
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