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Every driver needs car insurance, and it can be expensive. Discover one of the best ways to lower your car insurance rates. [[{“value”:”
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There are many ways to save on auto insurance. You could ask your insurance company about discounts. Drivers who complete a defensive driving course get an average discount of about 10%, to give you one example. Many car insurance companies also offer discounts if you bundle your home and auto insurance.
But one of the biggest savings opportunities isn’t a discount offer. It’s not related to your coverage choices or your driving history, either — it’s your credit history. If you don’t have a high credit score right now, fixing that could save you over $2,000 on your car insurance costs.
How your credit score affects your auto insurance rates
In most of the United States, car insurance companies can check your credit and use that when setting your rates. The only states that don’t allow this are California, Hawaii, Massachusetts, and Michigan.
Drivers with an excellent credit history pay an average of $1,947 per year for car insurance. That’s based on research into how credit scores affect car insurance rates by The Motley Fool Ascent. Here’s how that compares to the overall average and the average for drivers with poor credit:
The overall average is $3,017. That’s $1,070 (55%) more than what drivers with excellent credit pay.The average for drivers with poor credit is $4,145. That’s $2,198 (112.9%) more than what drivers with excellent credit pay.
Improve your credit and save on car insurance
A high credit score is good to have, for many reasons. It can help you qualify for top credit cards with more benefits. If you want to buy a home, your credit score will determine your mortgage rate. And as covered above, it can significantly cut your car insurance rates.
So, how can you improve your credit? The first step is to get your credit score. There are plenty of free tools you can use online. I use Experian CreditWorks℠ Basic. In addition to providing your credit score, these tools also let you know how you’re doing in all the areas that affect your credit. This makes it easy to figure out where to improve.
The best ways to build your credit will depend on what’s currently affecting it. Here are the most common moves that can help:
Pay down balances on your credit cards. A large amount of credit card debt is bad for your credit, and it costs you money in interest. Paying down debt is one of the fastest and most effective ways to raise your credit score. Aim to get your cards paid off, and then continue paying them off in full every month to avoid interest charges.Always make payments by the due date. Your payment history is the biggest factor in your credit score. If you’re new to credit, or if you’ve had previous payment issues, then paying on time is how you’ll build an excellent credit history.Review your credit report at least once a year. Your credit report is a record of all your credit activity. You can get yours free of charge up to once a week at AnnualCreditReport.com. You don’t need to review it weekly, but you should do so at least once a year to check for errors. A Consumer Reports survey found that 34% of people reported errors on their credit report.Dispute errors on your credit history. If you find any mistakes on your credit report, dispute them with the credit bureau that issued the report. Each credit bureau (Equifax, Experian, and TransUnion) lets consumers file disputes online. A friend of mine successfully disputed items on her credit history, and her score went up by over 100 points.
There are only a few things you need to do to build and maintain excellent credit history. Always pay on time, pay down credit card debt (or better yet, pay it off entirely), and watch out for credit reporting errors. If you get into the habit of doing that, you’ll get all the benefits of a high credit score — including much cheaper car insurance.
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