In today’s economy, bad credit auto insurance is often the result of circumstances beyond your control. Many drivers are concerned with saving money on their automobile insurance. Whether it’s the loss of a job or an unexpected medical expense it doesn’t take much to have a poor credit score. Auto insurance companies often charge more regardless of how good a driver you are. Every state except Maryland and California now allows insurance companies to use credit scores. Credit score means determining auto insurance premiums. While some states stipulate this practice can only be used for new customers, in some areas people find their premiums jumping due entirely to a bad credit rating.
This may seem very unfair to customers who have been long-standing clients of a particular company. However, auto insurance companies justify the practice by citing the fact that statistically. People with poor credit are far more likely to file insurance claims than those with good credit ratings. Because of this, auto insurance companies classify those with poor credit in a high risk auto insurance cheap group and adjust rates accordingly.
How much can your credit rating cost you in increased insurance premiums?
In general, people with the lowest credit ratings spend two to three times more than those with good credit ratings to obtain the same insurance coverage.
As an example, a twenty-five-year-old male in suburban Atlanta, Georgia, driving a mid-sized sedan and with a good driving record might expect to pay $1,400 per year for car insurance. However, if he falls into the lowest credit rating category, he may pay as much as $2,500 per year for the same coverage. This is an increase of 84% overall and represents an increase of $92 per month for premiums. This difference may mean that the young man with bad credit may have to forego necessary coverage in order to simply afford an insurance policy.
In 26 states, auto insurance companies are required to notify customers. They do it if they use credit scores as part of the formula for figuring their premiums, and about 90% of insurance companies do. However, it is possible to find insurance companies that do not use credit scores with some patience and searching. However, beware of companies that advertise “no credit check” insurance; often, missing a single payment with these companies can send your premiums sky-high.
Of course, bad credit auto insurance is not the only thing contributing to your premium costs
Your driving record, age, location, and the type of vehicle you drive all have an impact. The younger you are, the poorer your driving record, the urbaner your area, and the more expensive your vehicle, the more you will pay. If you add bad driving record auto insurance on top of those factors, you can be looking at significant increases in price.
The good news is that you do have some control over some of these factors. Keeping to the speed limit and driving defensively will help you avoid speeding tickets and accidents, two things guaranteed to send your premiums skyrocketing.
Another piece of good news is that your credit rating is very much a flexible thing. Being late on a few payments is not likely to significantly impact the cost of your insurance for bad credit. In fact, you will probably not start to see significant price increases on your auto insurance until you reach a “low” credit level. This is something which can be avoided by some simple financial planning and common sense such as:
Never max out your credit cards
Although it is tempting to “buy now, pay later”. A high debt-to-limit ratio is one thing that truly raises your credit score. Always pay as much as possible on your credit cards. Avoid using credit cards in the first place by leaving them at home and paying cash for your purchases.
Always pay the minimum on your open accounts
Missing one payment is not the end of the world. A pattern of late payments drives your credit score down and your auto insurance prices up. In a worst-case scenario, if you are unable to pay your bills, talk immediately to your creditors. Always arrange affordable payments. Bankruptcy is a very real threat to most unsecured creditors; they will receive little if any compensation if you file, so they are usually eager to work with you to pay your debt. You can also talk to a credit counseling service that can negotiate lower payments for you.
Bringing your credit rating up is not easy, but it is possible, it may involve some life changes. You can take control of your finances, and your bad credit auto insurance premiums with some hard work.