Does Your Bad Credit Have An Impact On Your Insurance Rates?

Everyone knows that their credit affects whether or not they’re approved for a home or auto loan, but did you know that your credit score could have an impact on whether or not you’re chosen for a professional job? Increasingly, employers are using an applicant’s credit report as a means of discerning his or her honesty, integrity, and responsibility.

As Americans use more and more credit, and more families fall into debt, the importance of your credit score increases exponentially. In fact, even car insurance companies use your credit score in determining the premiums that you pay.

What Does Your Credit Have To Do With Your Insurance?

Insurance companies gather all possible data points and use them to develop profiles. Over the years, they have determined that individuals with less than stellar credit are more likely to get in accidents and file claims. Furthermore, insurance companies are more likely to incur the costs associated with late payments, insufficient funds, and premature cancellations from customers with poor credit.

What You Can Do To Lower Your Rates

If you’ve made mistakes with credit in the past, take comfort in knowing that you’re not alone. In fact, as the number of Americans with poor credit increases, the old profile of the credit-constrained insurance customer as a high-risk driver is likely to change. After all, there is considerable difference between maxing out a credit card and running a red light - and time should enlighten the insurance industry to this fact.

Meanwhile, it’s important to note that your credit history is far from the only factor in determining your insurance rates. In fact, it is a minor factor when compared to your driving record, the type of car you drive, your age, marital status, where you live, and a myriad of other profiling factors. The best thing you can do to lower your insurance premiums is to be a safe driver who avoids tickets and other traffic incidents. A safe driver in the middle of bankruptcy is a much better risk for insurance companies than a convicted drunk driver with stellar credit.

Steps To Improve Your Credit

Insurance is a financial matter, and if you’re taking the time to investigate your insurance options, chances are that you’re ready to make other changes too. Improving your credit is not an impossible feat, but it will take time, discipline, and commitment.

First, you should contact your creditors and attempt to negotiate payment plans or settlements. Although many such plans - particularly settling for less than 100 percent of a debt that has been sent to collections - will show up as negative information on your credit report, it is far worse to let interest continue to mount on debts you have no ability to pay. You would be surprised at how cooperative most creditors can be. Remember, your creditors are businesspeople first and foremost, and most of them will welcome the opportunity to work with you in order to avoid going to court. When lawyers get involved, typically everyone loses.

Secondly, you need to stop relying on credit and develop a plan to live within your means. This doesn’t mean that you should swear off the use of credit altogether, though. After all, in order to rebuild your credit, you will have to show that you can be responsible, and the only way to do that is by paying creditors in a timely manner.

Third, you must resolve to never repeat the mistakes of your past. Credit is a tool to be used, but not abused. More than just your car insurance premiums, credit has an effect on so many aspects of every day life. Taking responsibility for your actions and developing a plan is a first, important step. Congratulations for making it this far!