Credit Ratings Affect Car Insurance Rates

By James Tam on August 13th, 2007

You may already be aware of the fact that creditors use your credit ratings for determining your credit limit and the applicable interest rates, but are you aware that your credit ratings can also affect your car insurance rates? If not, then you certainly need to do a reality check to find out exactly how your credit ratings affect your car insurance rates.

There is no doubt a huge difference between applying for a loan and buying a car insurance policy, but if you look closely, you will realize that there are many commonalities as well. The most glaring similarity is that in both the cases, you are required to fulfill your payment commitments.

In case of applying for a loan, it is the monthly installment that you are required to pay and in case of buying a car insurance policy, it is the premium you are required to pay. Now, since your credit ratings basically display your ability to fulfill your payment commitments, it becomes quite obvious as to why insurers have started scanning your credit reports for determining your car insurance rates.

Earlier, auto insurance companies just used to consider your age, type of car, driving record, and claims record for determining your car insurance rates, but now your credit ratings play a major role in determining your auto insurance rates. So, if your credit ratings are not good enough, get ready to pay higher insurance rates. There will be no escape from rising car insurance costs even when you might be paying your premiums in time, have a decent driving record and may never have filed an auto insurance claim in the past.

So, what is the solution? Well, the answer to that is quite easy – “you just have to improve your credit report”. However, implementing that may pose a challenge because negative entries on your credit report remain there for seven to ten years before becoming eligible for deletion. This is why it is recommended that you take proactive steps rather than waste your time and effort in finding a cure.

It may take some time, but if you start on the right note, i.e. limit your credit usage, and promise to continue on the same lines, you can certainly improve your credit ratings and consequently become eligible for low car insurance premium rates. If needed, you can also get help from financial experts who will tell you exactly what you should be doing to improve your credit ratings and your credit score.

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