Auto insurance companies take many things into consideration when rating a drivers risk to determine the correct premium. One thing they take a close look at is your credit history. The three major credit reporting agencies are Equifax, Transunion, and Experian. These agencies determine your credit score (on a scale from 400 to 850) by looking at certain key factors as indicated below.
The first thing they look at is payment history. A history of on time payments indicates you are a responsible borrower who will continue to make agreed upon payments. The payment history makes up about 35 percent of the credit score determination factors, which happens to be the largest percentage. (Side Note: If you cannot make a regularly scheduled payment on time, for whatever reason, the best thing you can do is contact the lender. Often times they are understanding and will give you a grace period to avoid getting the credit reporting agencies involved.)
The next thing they look at is the amount of debt you carry and the circumstances involving that debt. You should keep your credit card utilization rate under 30 percent which would leave you with 70 percent available credit. In addition to lowering your car insurance premium you will enjoy benefits such as lower interest rates on auto and real estate loans, and additional credit card offers with better terms and perks.
After considering debt and payment history, they will look at the credit history age. The longer a person has an established credit history the more points they will score in this area. Longevity is the key and this aspect represents about 15 percent of the deciding factors.
Next comes the type of credit on your report. The credit reporting agencies like to see a good mix of accounts, meaning a mix of revolving debt to include credit cards and utility companies and other types of debt such as loans. One thing you can do to improve this area is to add some of your regular bills to your credit report such as rent, utilities, and/or cell phone bill. Making these payments on time suggests you are ready for additional loans or lower interest rates.
The last thing the bureaus look at is collections. If a person fails to pay a bill on time, and no payment arrangement is made, the account falls into what is known as collections. Usually, a separate company takes over the default account and will attempt to collect the debt. They do this by calling clients or sending letters in the mail. The longer an account is in collections, the worse it looks to the reporting agencies.
How Do You Save on Car Insurance if You Have Bad Credit?
If you believe your car insurance rates are high because of your credit score, the first thing you should do is shop around. Some insurance companies weight your credit more heavily than others, so switching to one that doesn't count your credit as much could give you a lower premium.Next, work on your credit. If you can lower your credit card utilization and take care of late accounts, your credit score will start to go up. Once your credit score goes up, you can request new car insurance quotes to see if you can switch to cheaper coverage. In most places, you can get a full refund for the remaining amount on your car insurance policy, so you don't even have to wait until it's renewal time to make a switch.
Because you are a potential Florida Auto Plus Insurance client we are dedicated to arming you with the most accurate information regarding car insurance and how to get a lower rate. Credit scoring can be tricky sometimes, however we hope the above information will help you achieve a better score. Call Cliff or Andrew Schimek today for a fast free rate quote and see how much we can save on car insurance.
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