Negative Credit Reports May Increase Auto Insurance Rates

When a person applies for car insurance coverage, the insurance company checks a few things before extending coverage offer. The rate that is quoted is determined by a combination of the following: driving record, age, hometown or zip code, type of car, distance traveled to work, marital status, and possibly even a credit report. While insurance agencies are not permitted to look at credit reports in some states, in most states this is a well-known practice. Automobile insurance companies check credit repots because a credit report can say a lot about a person's ability to behave responsibly and it can also tell whether or not a person will likely pay his or her car insurance bill on time. Based on what negative items a car insurance company finds on a credit report, it's possible that the company will either not offer car insurance coverage or may offer coverage but at a very expensive rate.

Possible Scenarios

1) When looking at a credit report, an insurance company may notice that several years ago there was a period of time when there were late payments made on credit card bills. The truth is, that was during a time of unemployment, and the late payments were practically beyond anyone's control. However, the late payments still show up on the credit report. The car insurance company sees this and can use it to justify charging higher insurance premiums. 2) When reviewing a person's credit report, it's obvious that the person has a very small credit history. This is due to the fact that the person has preferred to not own a credit card but to pay for anything needed using cash. Because there is no solid credit history on the report, the car insurance company does not have true evidence that the person has the ability to make monthly car insurance payments on time. This is justification for the car insurance company to demand higher premiums.

A Driving Record is Not All that is Important

Yes, a good driving record is important, but it's not the only important thing in helping to obtain good car insurance rates. In addition to a person's age, the type of car they own, and the number of times he or she has filed a car insurance claim in the past, their credit report is the next most important factor in determining if that person will be offered low or high car insurance rates.

How to Improve a Credit Report

If a car insurance agent admits that the reason car insurance premiums are high or that car insurance coverage is denied completely is because of a negative credit report, that report must be cleaned up immediately. The first way to get on the path to good credit is to consistently pay monthly bills on time . There should never again be any excuse to sending payments to credit card companies late. Second, if a credit card is not owned, one should be obtained and it should be used very wisely. Use it to build a credit history, not to build debt. Third, make sure to consistently check and make sure the credit report does not contain any false or incorrect information. Copies of credit repots can be obtained for free from any or all of the three credit reporting agencies in the United States.