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Wednesday, 4 May 2011

Low Credit Scores and High Auto Insurance Rates

Most of us realize that auto insurance companies will use our driving history and location as factors to determine the price we have to pay for auto policies. However, many consumers are not aware that their credit history can also be used as a risk factor. Many top insurers consider a low credit score to be a high risk factor. High risk factors mean higher auto policy premiums.
At first glance, this may seem very unfair. Just when a person is struggling financially, they have an additional burden of higher car insurance premiums! It may also seem like credit scores should not have anything to do with the risk of making auto accident claims.
However, insurers insist that they have done a lot of research that supports this practice. They believe that financial problems mean that people will be more likely to make claims on their insurance policy. The insurance boards and government accepted this logic, and they allow the companies to charge more for people with poor credit.
This means that an individual could have a clean driving record, but never qualify for the cheapest rates because of credit issues. If you are in this situation, how can you find affordable coverage from a good company?
Deal With Poor Credit Auto Insurance
  • Never drop your coverage. You probably are required to carry some minimum coverage by state law. Getting caught without this coverage will only add to your problems.
  • If you still owe money on your vehicle, your lender probably requires minimum coverage too. This will probably be higher than the amount required by state law. The lender wants to make sure their investment is protected.
  • All insurance companies are not the same. If your current lender has raised your rates because your credit score dropped, it is time to do some comparison shopping. This is not hard to do.
  • You can consult with a good local car insurance agent or use online quote forms to compare local rates. Because rates are set at the local level, and many other unique things can affect your own rates, it is not possible for me to name one particular company that will be the cheapest for you.
Can You Fix Your Credit?
Of course, ideally, you should work to fix your credit. Good credit makes life a lot easier in our consumer driven society. If you have good credit, it will be a lot easier to obtain financing. You may not think you want to use credit. But you never know when you may need it to repair an important appliance, or even to visit the dentist! Decent credit can make your life more secure.
There are some things you may be able to do that will raise your credit score quickly. Paying off a debt or disputing errors on your credit report can provide a quick fix.
However, sometimes it takes a while to get back on your feet financially. If you cannot fix your credit score quickly, you will have to work to deal with it.
You should look for an auto insurer that weighs other things more than credit when determining your rates. You may also qualify for some discounts that will offset the higher premium. If you think it is unfair because your company charges you more because of financial problems, you can always vote with your pocket book!

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