Most of us don't have perfect driving records. Still, even if you've never been pulled over, never been in a collision, never even had a parking ticket, you might wind up paying a lot for car insurance if you've got bad credit.
Why Credit MattersIt has been well over ten years since credit scores starting being used to assess risk. Statisticians found that people with low credit scores file more car insurance claims. Ever since, low credit scores have been rocketing up car insurance premiums.
Your risk probability is determined by hundreds - even thousands - of factors. The higher the risk that you will file a claim for damage or theft, the higher your premiums will be.
If your credit worsens, your premiums will go upYou might think to yourself, "Oh, I haven't been in an accident since signing my new policy. Everything is going great. They might even lower my premiums!" But then you see your premiums have gone up several percentage points. What happened?
Your credit got worse. Maybe you missed a credit card payment or took out a loan. Maybe you just had to put some bills on your credit card. Now, you have to pay for it in several ways, including your car insurance.
How to fight itImprove your credit
Follow these simple steps to put your credit score on a step-stool.
1. Get a free credit report
Credit companies are required to give you one free credit report every year. However, don't fall into those online scams. Talk directly to a credit authority, like Experian or TransUnion. Or, you can view your report online or request it by mail from AnnualCreditReport.com.
2. Check for errors
Make sure that there aren't any mistakes on your credit report. Look out for fraud as well. If you think there is a mistake, tell the credit company to investigate it—they have to for free.
3. Pay down some debt
There might be old bills or debts on there that you just forgot about. Pay those off first. Then, pay down your credit cards to 1/3 of their limits.
4. Build credit
Keep your oldest credit cards open and make all your payments on time. This builds a good credit history and shows that you are reliable. It will convince the credit people and your car insurance provider.