Why Credit Affects More than Interest Rates
Everybody knows that they should try to maintain a good credit score. When it comes to apply for a mortgage or an auto loan, a good credit score is vital. You may be excluded from some jobs if your credit leaves something to be desired. If you have poor credit, your insurance premiums may also be affected. You may be charged higher premiums, or even be denied for insurance. By learning about how credit affects your insurance premiums and how to improve your credit, you can take actions to ensure that negative credit doesn't hurt your premiums.
Why Poor Credit Costs You
Insurance companies deal in statistics. Over the years, the insurance companies noticed a trend with their clients that had poor credit: they tended to make more frequent insurance claims. Even though you may be a perfectly responsible individual, and your poor credit is a result of a layoff followed by medical expenses beyond your control, the insurance company will lump you in with all the people who are not responsible and tend to cost the company money. Although this doesn't seem fair, that's how things work.
Improving Your Credit
If you have poor credit, you will want to do something about it. The first thing that you will need to do is obtain a copy of your credit report. Be sure to check for errors.
If you find an item on your credit report that doesn't belong there, you can file a letter of dispute with the credit reporting agency that is reporting the error. If your credit report is free of errors, you might want to find out the reason why you have poor credit. If you have made late payments in the past, make sure that you don't repeat that mistake again. As the late payments that you have made go farther into the past, your credit score should rebound. Another way to improve your credit score is to pay down your credit cards. If you are maxed out on your credit cards, that will hurt your credit. Try to keep the ratio between the amount of credit you are using and the amount of money you can borrow low. If there are any collection agencies after you, try to negotiate with them. You might be able to have them take off any negative remarks in exchange for paying off your bill. Be sure to get anything in writing before sending off money.
What is Good Credit?
The average credit score is around 690. If your score is in the upper 600s, you will not have to worry about negative credit affecting your credit score. Even if your credit is in the lower 600s, your credit is fair, and you probably will still be okay. If your credit is below 600, you should definitely work on your credit, as you may see higher rates or get denied completely for insurance.