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Your Credit History Affects Your Car Insurance Rates

Yes, your credit history affects your car insurance rates. Simply put, a relevant, mature, and predominantly positive credit history allows you to get faster automobile insurance approval, lower closing costs, as well as lower premiums paid. This article will discuss the basic concepts relevant to credit history, reason behind the above mentioned statements as well as provide information on how to get information on the same.

Credit History Defined

Credit history may be defined as the length of time within which a certain individual or corporation has been using credit transactions as well as the facility of credit cards and how the consumer has been making payments on the same. This means every transaction made is scrutinized. In essence, the longer you have been using the facility of credit, the longer your credit history. However the way by which you have been paying your credit related transactions determine whether or not your credit history is positive or negative. A long credit history of full and timely payment means an excellent credit history, but one which shows a lot of defaults is not so good (average or poor).

The Concept of Credit Reports

Of course in some jurisdictions credit history and credit reports can be used interchangeably. However, strictly speaking, credit history is only an aspect or a category found in a credit report. Most credit reports, especially those based on Fair Isaac Corporation's (FICO) credit scoring model provide information on:

  • 1. Credit history;
  • 2. Total amount of debt;
  • 3. Payment history;
  • 4. Credit inquiries;
  • 5. Number and types of credit used;
  • 6. Other factors such as bankruptcy filings, foreclosure, wage garnishment, support, alimony, etc.

Credit Ratings and Scores

There are hundreds if not thousands of credit reporting agencies out there that have their own credit report, rating system and score. However the best way to determine one's credit rating and score is to pull out credit reports from the top three credit reporting agencies (Equifax, Experian, TransUnion). Credit reporting agencies collect information relative to credit history as well as the other abovementioned categories. This information is used to assess the amount of risk as well as the type of risk that a consumer presents. As a general rule, the more positive information such as full and timely payments, low amount of debt relative to the credit limit, numerous and variable credit related facilities, reasonable number of inquiries, the better the credit ratings. Of course the reverse is also true.

Effects on Automobile Insurance Rates

The more positive information on your credit history, the better your chances to get approved for automobile insurance and the lower the premiums to be paid. This is because insurance providers determine whether a particular individual as well as automobile to be insured is an acceptable risk. This is determined by an actuary who makes use of personal information, public records, as well as financial information.

Without getting into the personal information, let us discuss the effect of your credit history. Insurance providers look for a consumer that can pay on time and in full the total cost, closing cost and especially the premiums for the insurance. A credit history replete with defaults shows that there is a bigger chance that the same consumer will also default on the insurance premiums or payments. Remember, insurers are not credit card companies that have a high degree of discretion to increase interest rates in case there is default. Insurers can require the payment of penalties as well as increase the interest rates but not as easily as credit card companies can. As such, full and timely payment is also an important factor in considering a consumer applying for car insurance.

Therefore an insurer can justify refusal to take up the insurance needs of a consumer or increase the premium payments to offset the increased risk of nonpayment or failure to pay on time and in full.

Check Your Credit History Before Inquiring

A very important tip to remember before asking for an insurance quote or requesting pre-approval is to check your credit reports. Pull out your free credit reports if you still qualify for one by clicking the appropriate link found on the website of the Federal Trade Commission (FTC). Determine your rating via the report or purchase one credit score. Next make a general inquiry as to the requirements or usual practices of the insurance provider of your choice. You can ask from a local office, the official website, from blog sites, and social networking sites. Determine if your credit history is good enough. If it is not or in case of doubt, better repair your credit history by paying as much of your overdue debts as possible and making sure 100% of the information found on your reports are accurate, relevant and timely.

In Closing

Reality is, your credit history affects the chances of approval as well as the premium payments on your automobile insurance. However you can control the effects or at least be ready for them. This can be done by planning ahead, making the proper inquiries, and then taking the proper steps to clean up your credit history before getting an insurance quote.

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