While several factors can affect car insurance costs, credit scores play an integral role in determining a motorist’s auto insurance premiums, according to a report by AutoInsurance.org.
In fact, drivers with poor credit scores can pay up to 60% more on car insurance premiums, Autoinsurance.org found. Here’s how average monthly full auto insurance costs vary by credit scores, according to the organization’s analysis.
- Poor credit: $226
- Fair credit: $148
- Excellent credit: $123
Even for the same person, credit scores can vary depending on the credit scoring models used (FICO and VantageScore both have various models) and the credit bureau using it (Experian, Equifax and TransUnion). According to FICO here’s how credit score ranges are categorized, according to Experian.
- Poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Exceptional: 800 to 850
But even for two people with identical driving records, credit scores can form a substantial gap between their auto insurance costs, studies show. In fact, drivers with very poor credit pay an average of 114% more for auto insurance than those with exceptional credit.
If you’re looking for a way to save money on your auto insurance costs, it may help to change providers. Visit Credible to compare quotes from multiple insurance companies at once and choose the one with the best rates for you.
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How to raise your credit score
Raising your credit score can help you save money on auto insurance. And drivers can start by reviewing their credit reports. By law, people are allowed one free report from each of the major credit bureaus Experian, Equifax and TransUnion each year.
By reviewing their credit reports, individuals can find any discrepancies and room for improvement. For instance, they may find evidence of false missed payments that can be disputed. They may even find accounts fraudulently opened in their names. In fact, 34% of respondents found at least one error on their credit report, according to Consumer Reports’ 2021 Credit Checkup survey.
Credit reports can also give consumers an overview of important factors affecting their credit score including credit utilization and payment history. Here are the factors that have the most impact on a person’s credit score.
- Payment history (35%)
- Credit utilization (30%): This is the amount of credit used divided by total credit available. Experts recommend it be kept below 10%
- Length of credit history (15%)
- Mix of credit types and the accounts currently being used (10%)
- The number of recent credit accounts opened and applications made for new ones (10%).
If you’re having trouble making monthly payments on high-interest debt, you could consider paying it down with a personal loan at a lower interest rate. Visit Credible to get your personalized rate in minutes, without affecting your credit score.
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How to pay down debt
Car insurance premiums can be heavily influenced by someone’s credit score and carrying over a balance can harm a person’s credit. In a best case scenario, an individual would pay off a credit card or other revolving credit balance in full each month. But that’s not always feasible. Still, there are steps that can be taken to pay down debt quickly.
Here are some considerations.
Avalanche method: This involves paying down the credit card with the highest interest rate first. Several online tools can help consumers determine how much they need to pay each month in order to pay off a debt based on factors like balance amount and interest rate. These can help consumers see what they can budget to pay off high-interest debt as quickly as possible.
Snowball method: This strategy is essentially the opposite of the avalanche method. The purpose is to pay down the smallest balances first, which may have a positive psychological effect that can keep an individual motivated to stick to a plan.
Balance transfer card: These cards allow consumers to move their credit card debt to a different card, which may offer a set period of time in which one can pay off the debt at a 0% interest rate.
Personal loan: People can compare rates and terms from different lenders to see if they qualify for a suitable personal loan they can use to pay off high-interest debt at a lower rate.
If you’re struggling with high-interest debt consider taking out a personal loan at a lower interest rate. Visit Credible to speak with a personal loan expert and get your questions answered.
AUTO LOAN INTEREST RATES HOVERED BELOW 8% FOR BORROWERS WITH SUBPRIME CREDIT SCORES: CUNA
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