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Does A Bad Credit Score Affect Car Insurance?

4 Ways Your Car Insurance Could Drive Down Your Credit Score

When applying for car insurance, one or many of your credit scores are likely to be scrutinized. If your credit reports suggest that you do not manage your expenses responsibility, the chances are that you will be charged a higher rate.

According to Carsurance, a bad-credit driver in the United States pays $1,513 more in annual premiums.

Much has been said about how a person’s creditworthiness can increase or decrease the cost of financial products. However, many people do not realize that the latter also affects the former. Does your credit score impact car insurance rates? In a nutshell, below are the four ways your car insurance can knock points off your FICO scores.

    • Hard Inquiries

Your prospective insurer will probably run a credit check to review your credentials in order to determine a reasonable premium for you. The very act of requesting for your credit reports is called a hard inquiry, which is a negative item that will appear in your file.

Credit inquiries do not carry a lot of weight, but their quantity and frequency can make them a real cause for concern. The number and the timing of your credit inquiries account for your credit scores, but their impact depends on the FICO model used by the credit-reporting agencies that calculated them.

You can choose to get a car insurance policy with no credit checks attached, but skipping a credit inquiry will likely increase your premium.

To minimize the influence of inquiries to your credit scores, do rate shopping over a short period. This way, multiple hard inquiries may count as one.

    • Delinquent Payments

Nobody has to tell you that missing your insurance payments can hurt your credit big time. It is imperative to negotiate for a rate you can afford. Paying your premium annually may save you money, but the manageability of monthly repayments can reduce the risk of delinquency.

    • Maxed-Out Credit Limits

It is fine to pay your car insurance with plastic, but be mindful of your credit utilization. Just because you have available credit does not mean you can use it to the fullest without consequence.

Ideally, you should only use 30% of your overall credit limit. Going beyond that number may pull your credit scores down.

  • Incorrect Reported Items

If you are a punctual insurance payer, you can still have surprisingly low FICO scores due to errors. Negative items may be linked to your name incorrectly due to mistakes on the part of data furnishers like car insurers. Review your credit reports ahead of your car insurance application, so you have more time to fix all inaccuracies.

Understanding the interplay between credit scores and insurance products can benefit you a lot over the long term. Strive to build your credit to help reduce your car-related expenses throughout your motoring life.

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