You finally bought the new car you've been wanting, and all that's left to do is purchase auto insurance. Before you do, take a look at your credit score.
Similar to landlords, insurance agents take your credit score into consideration when determining your premium. Consumer advocates have long argued against the use of credit scores to assign insurance rates, and some states have banned the practice. But the majority of insurance agencies say drivers' credit scores are a good indicator of how likely they are to submit claims.
Studies have been conducted to determine how heavily insurance agents rely on credit scores to assign rates, but the most recently planned survey will be scaled down. Auto insurance agents say conducting a comprehensive report is too costly, according to The Wall Street Journal. But consumer advocates are incensed, as they hoped the survey would shed more light on the issue of using credit scores to assign rates.
Creditors, employers and insurance agents have long believed credit scores are a reflection of how responsible and trustworthy applicants are, but don't let a lower score prevent you from getting a new car or new insurance coverage. Take the time to research different insurers. Meanwhile, start taking steps to improve your credit score.
Obtain a copy of your credit report and your credit score. Your credit report will not necessarily include your credit score, but it will give a snapshot of your financial standing - all of which influence how your score is calculated. Examine your credit report carefully for errors, such as missing accounts, inaccurate credit balances and outright mistakes that will lower your credit rating. Submit credit disputes to have erroneous information removed from your report.
Analyze your financial behavior. Do you pay your bills on time? Are you constantly maxing out your credit cards? How often do you apply for new lines of credit? These habits will all influence your credit score. Payment history alone makes up 35 percent of your credit score, so make sure all your bills are paid on time, every time. Keep your credit card balances low. Using too much credit each billing cycle looks bad, even if you pay your bill in full. It’s best to use less than 30 percent of your available balance. Also keep in mind that each credit application you submit results in a hard inquiry on your credit report, and too many hard inquiries will lower your credit score.