Why is my credit history important?
Insurance companies use a wide variety of criteria to determine whom they should insure and what rate they should charge the individual. When applying for auto insurance, your insurance company may consider your age, driving record, and how many insurance claims you’ve filed in the past. They also will consider things like the make and model of your car, where you live, and how much driving you do. More recently, however, insurance companies have also begun using credit information as an additional factor in evaluating risk.
Currently, auto insurance companies believe that the better your credit history, the less likely you are to file a claim against your insurance policy. In addition, a good credit history may also indicate that you are more likely to pay your insurance premium payments on time. Your credit history may also suggest that you are more likely to be a responsible driver. Basically, what this means is that if you have a good credit score, you may be offered a lower premium by the insurance company. On the other hand, if your credit history is less than perfect or if you have little or no credit history, you may pay higher premiums for your car insurance. It’s even possible you could be denied coverage based on a bad credit history.
Denied coverage due to bad credit?The Federal Fair Credit Reporting Act allows you to order a free copy of your credit report from the credit bureau used by the auto insurance company who denied you in the case you are denied coverage based on your credit report. If you feel the credit information provided to the credit bureau is inaccurate, you can dispute it with that credit bureau.
If you’ve been turned down for car insurance already based on your credit history there are some steps you can take to begin improving your credit situation. The checklist below may help you in improving your credit:
1) Start working on your credit now. Make sure you pay your bills on time each month, dump your high interest credit cards, and, above all, make sure you aren’t spending beyond your means.
2) Consider a payment plan with your creditors. Many creditors will negotiate a better payment plan with you if you are sincere in resolving your credit issues. They may even reduce fees or late payments.
3) If you don’t have credit, and because of that, no credit history, you should consider applying for a credit card or a small personal loan. The lack of a credit history can be a problem with insurance carriers because they don’t know if you can be relied upon to pay your bills on time. While you certainly don’t want to run up significant debt it is important to show that you can use credit in a responsible manner. To build a history, use your credit regularly and make sure you make your monthly payments on time.
4) Every year, make sure you get copies of your credit report from the three major credit bureaus. Check the information to be sure that they accurately reflect your credit history. Be certain to dispute any errors with both the creditors and the credit bureaus involved. In addition, your credit reports can be a good source for catching people engaging in identity theft so even if you think your credit score is perfect, it’s still a good idea to get your credit reports every year.
5) Make sure you shop around for car insurance. The price of auto insurance can vary substantially from one carrier to another depending on a wide variety of factors. Don’t just take the first quote you get.
6) Look at a higher deductible. Higher deductibles can have a substantial affect on lowering your premium costs. They may also help you get insurance coverage. You just need to be certain that you can cover the deductible should you be faced with a claim.
The use of credit reports in evaluating insurance risk is a standard in the insurance industry. Make your credit work for you by watching it closely. In most cases, you may be rewarded with lower premiums if you do so.
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