3 Little Numbers That Hurt Your Auto Rates

You probably know auto insurers look at where you live when deciding what rates to charge you. If you live in the city, you’ve recognized the fact that higher premiums are a part of urban life.

And you’ve accepted that your rates will spike if you get into an accident… even if it really was that other driver’s fault.

But did you know insurers are just as interested in your missed credit card payments and overdue loans? According to a new Consumer Reports investigation, some companies are taking a hard look at your credit history when calculating your premium.

Auto Insurers Keeping Score

Sometimes it just doesn’t matter where you live or if you’ve got a flawless driving record. Some insurers have started using “credit-based insurance scoring” — meaning they’re looking at your financial data that’s kept on file at major credit bureaus.

This includes anything from the number of loans you’ve taken out to your bill-paying history. And the numbers are not always accurate. Mistakes show up on credit reports all the time… which is even more frustrating when it’s costing you more in car insurance.

Auto insurers are secretive about how their credit-based scoring affects your premium, and no two companies may use the same model for determining rates. But in tests performed by Consumer Reports, the difference between a good score and a poor one could cost you hundreds of dollars.

Your Best Defense: Keeping Your Credit Clean

Despite efforts in Washington to take financial history out of the auto insurance equation, credit-based scoring is still a reality. Your best defense is to keep your credit as clean as possible.

• Get your report. Experts recommend reviewing your credit report at least once a year to catch any errors that could negatively impact your score. Everyone is allowed a free copy of their credit report once a year. You can request yours at www.annualcreditreport.com.

• Build auto insurer-friendly credit. According to Consumer Reports, auto insurers favor major credit cards like American Express, MasterCard and Visa.

• Spend what you can afford. If you’re serious about building good credit, only charge what you can afford to pay off each month to your credit cards. Not only do you look responsible in the eyes of major credit bureaus, you save yourself from those high interest rates.

The only way to know for sure if you’ve found a good deal on your car insurance is to shop around, and shop often. Some companies look at credit during renewal time, so at the minimum you should compare rates every 12 months to make sure last year’s good deal hasn’t gone sour.