Why is increasing your credit score necessary to renew your car insurance? Insurance companies use your credit score to calculate the premium for car insurance.
Therefore, increasing your credit score prior to renewing your auto insurance is important. Even though not all states allow insurance companies to determine premium rates based on an individual’s credit score, the state of Connecticut does.
How Insurance Companies Use Credit Card Scoring to Calculate Premium
If your file does not include all the recently introduced programs and discounts since the last time you renewed your car insurance, you might see unexpected increases. Here are some ways states can determine your premium, based on your car insurance:
- Even if your credit score is not good, states will look at your score to assign you preferred rates.
- A decrease in credit score can influence your rate.
Ask your insurance company on whether they use credit scoring in calculating insurance rates and how your credit score will affect its cost. If your credit score is negatively affecting your rates, you need to work on improving it before you renew your car insurance.
Besides this, another reason your car insurance premium may increase is due to the overall losses an insurance company may experience that exceed their expectations or if they have not revised their rates in the past few years, this can also increase their insurance rates. On your part, you can take steps to boost your credit score as well as choose a discount saving insurance plan to decrease your car insurance rates prior to renewal.
How to Boost Your Credit Score
If you have a good credit score, you can save money. For this reason, you should always work towards increasing your credit score, as in doing so, it can reduce the amount you need to pay each month. Prior to renewing your car insurance, here are three ways you can boost your credit score to score good rates:
1. Pay Each Month on Time
You need to pay off your credit card each month on time. By making consistent payments, you can increase your credit score. This will ensure your insurance company that you are not a risk, as you have a consistent and reliable payment history. You can set up automatic payments to ensure that you can make your credit card payments on time. You can choose the date you want the payments to go out of your account automatically. If you write checks, write down in a notebook the amount you paid and the date in it each month.
2. Do Not Apply for Too Much Credit
When you apply for several loans, it can negatively affect your credit score. Insurance companies will view you as someone who is desperate for credit. If you want to obtain new loans, do it after every two to three months or even less if you can. Your credit report classifies these loans as hard inquiries.
3. Work to Decrease the Amount You Owe
You need to reduce your debt. To do that, make sure that you do not owe over 30% of your balance on the accounts you have. Here are a few tips you can follow to pay down the amount you owe:
- Do not use your credit cards to buy things. Instead, use cash to pay your bills and make purchases each month. You can use your debit card in place of your credit card as well.
- If you receive a bonus, cash gift, or tax return, you need to use the extra money to pay off your credit card. You can create a budget to ensure that you save money on the side to pay off your credit card. If you continue to pay the minimum amount, your debt will never end.
In addition to this, you can opt for a discount saving insurance plan to decrease your car insurance premium before you go in for a renewal. These programs are in place to help you decrease your car insurance rates. When an insurance company develops new programs, they may decrease the rates based on the client’s profile.
If you do not take advantage of these programs, this can negatively affect your car insurance premium. That is why, you need to ask your insurance company about any new programs they have introduced or are planning to introduce so you can continue to have lower car insurance rates. It is also a good idea to ask your insurance company the follow questions:
- Have you checked with other insurance company and how their car insurance rate compares to them?
- What are the on-going discounts and how can you take advantage of them?
- Do you give discounts for safety features in the car, such as automated security functions or automated braking?
You should also perform a complete review of the all the coverages you have to ensure you have everything on your plan that responds to your existing insurance needs. You also need to ensure that your insurance company is not penalizing you for claims or driving records of other drivers who are on your car insurance.
Improve Your Credit Score
If you want to reduce your car insurance rates, you should do your best to increase your credit score. In some states, they require insurance companies to recalculate credit scores after every three years when they set rates. Unfortunately, Connecticut is not one of them.
For this reason, you need to be proactive and take measures to improve your credit score so you can get a reduced car insurance rate. If you reside in Connecticut or any state that bases the car insurance rate they give you on your credit score, work on improving it.
If you do have bad credit and cannot lower your rates, there are other ways to reduce your premiums. In the next blog you can find out 11 Ways To Reduce your Auto Insurance Rates.
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