Did you know that there are 46 states that look at your credit score before determining your auto insurance premium? Only California, Hawaii, Massachusetts and Maryland are exempt, in fact. The reason auto insurers look at your credit score is that many companies believe people with better credit tend to get into fewer accidents and engage in less risky behaviors.
In addition to your credit score, an auto insurance company will also look at the type of vehicle you’re driving, your age, where you live, what safety features are installed on your vehicle, and your past history of tickets / accidents. Each insurance company has its own formula for calculating risk, which is why it often pays to get free auto insurance quotes and shop around the different rates available to you.
Factors Affecting Your Credit
The good news is that you can work on improving your credit score, which will not only lower how much auto insurance you pay, but also how much interest you pay on your credit cards and loans as well. Credit scores are calculated using the following factors:
- 35% is based on your payment history
- 30% is based on how much credit you have available to you
- 15% is based on how long you’ve had credit history
- 10% is based on the amount of debt you’ve accumulated over the last year
- 10% is based on what type of credit you have.
How To Improve Credit
- Do not miss any minimum payments on your credit cards or loans. Don’t by late by even one day!
- Try to pay off more than your minimum monthly payment. Aim to pay everything in full by the next pay period.
- Try to keep your credit usage down to 30% of your total credit limit or less.
- Do not apply for numerous credit cards and loans within a short period of time.
- Mix up your portfolio to include one long-term loan (like a mortgage or car payment) and a few credit cards.
- Do not close out old credit cards, as that will decrease your access to capital.
- Get a free copy of your credit report annually to look for errors.
Don’t forget to shop around for better auto insurance rates, whether you have good credit or not!