For decades, insurance companies have been using credit scores to reward customers with good credit, says the III (Insurance Information Institute). Credit scores are one of the many factors that help determine an insurance customer’s ”insurance score” which is a numerial ranking that determines each customer’s eligibility for specific rates. Therefore, homeowners and drivers with an above- average credit score may be rewarded with lower rates, while those with a poor credit score, may pay slightly higher rates.
While credit scoring is under much debate in certain areas of the country, insurance researchers have found direct correlations between poor credit scores and the likelihood of filing claims. Like it or not, low insurance rates are just one more bonus to maintaining good credit. Keep in mind, your credit score and/or your insurance score are never based upon income levels, race, etc. (For more information read about Financial Responsibility and Insurance Risk.)
The good news is, for those with poor credit- you always have the chance to turn it around. If you haven’t checked your credit report in a few months, get a copy. Make sure everything is correct and take note of your current credit score. Your credit score is often lowered if you have accounts which defaulted for non-payment and if you have high credit card balances nearing your limit. Settle any accounts left unpaid or come up with a payment plan so you can get them taken care of. Once they are paid off, request proof of settlement be sent to the three major credit bureaus. Also, make a goal to pay down any credit cards with high balances.
And since a poor credit rating can sometimes take some time to correct, take advantage of other insurance discounts in the meantime in order to save money on your premiums. For example, ask your home insurance agent about a home-auto discount, a burglar alarm discount and a smoke alarm discount.
Most car insurance companies will also lower your rate if you have not filed any claims over a specific period time or if you maintain a clean driving record