We all know how important credit scores are. They follow us around and spring up whenever we make an important purchase in which our ability to make consistent payments is judged. Credit scores are most often associated with home mortgage rates, but how about car insurance quotes? Does a credit score determine how much you’ll pay for auto insurance?
It might be helpful to first define what a credit score is. A credit score is calculated using information from one’s credit reports and used by banks to judge a borrower’s ability to make monthly payments. The thinking is that fiscal behavior in the past is a solid predictor of fiscal behavior in the future.
And while FICO scores -- the most commonly used score by lenders -- are far from perfect, they have historically been a good measure of fiscal responsibility. For this reason, they are one of the single most important metrics when it comes to quoting an auto insurance rate, outside of buying one of the most insurable cars. This is a strong statement when you consider that you’re actually insuring your vehicle, not necessarily the driver, when you purchase auto insurance.
Of course there are other metrics in your application form that carriers examine, such as marital status, highest level of education achieved, how long ago you first started driving, commute distance and others. But while these questions feature prominently on your insurance form, their import pales in comparison to metrics such as driving record, vehicle type and -- you guessed it --credit score.
Since credit scores clearly play such a large role in determining your monthly car insurance premium, you should consider cleaning up your credit before taking out your next policy. We realize this is easier said than done, but just remember that paying off a little debt now could lead to great savings over the next 12-18 months. Consider that credit card payment to be an investment.
Auto insurance is a mandated fact of American life. So too, for those looking to make major purchases, are credit scores. By creating awareness about the relationship between the two you can save money and suffer from fewer headaches down the road.
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Credit.com provides readers with unique insight, helpful tips and straight answers about their financial world. Our team of reporters and experts explore credit, loans, debt, saving, and identity theft topics, all designed to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!
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Josh Anish is the VP of Communications at CoverHound, where smart shoppers find insurance. He earned a BA from Amherst College and an MFA in Creative Writing from Brooklyn College.
