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Get Cheaper Car Insurance By Improving Your Credit Score

Written by Todd Clay. Posted in Research Last Updated: 05/18/2009

Three Steps to Improve Your Credit And Pay Less for Auto Insurance

How your credit will affect your car insurance rates.

How your credit will affect your car insurance rates.

All of us want to pay less for car insurance.  Sometimes it feels like we are pouring hundreds of dollars down the drain, especially when we go for years without making a claim.  So it makes sense to do everything you can to cut car insurance costs.

But there may be one thing you haven’t considered.

Many consumers cut costs by raising deductibles on comprehensive and collision coverage. Some may even eliminate collision coverage for an older car altogether.

Improve Your Credit For Cheaper Rates

Yet a less obvious way to get cheaper car insurance is to improve your credit score. Yes, that annoying number you see when you check your credit haunts you enough. But the reality is that it usually impacts your car insurance costs, too!

Your credit report reflects who you are.

In addition to showing your credit and payment habits, it has transformed into much more.  Your credit report now shows additional items, like where you work, how much you earn, how long you have worked in your present job, tax liens or judgments against you, and other things – information not seemingly related to your bill payment history.

Insurance Companies Use Credit To Determine Rates

As a result, many car insurance companies have jumped on this information.

Car insurance companies now have statistical evidence proving that people with lower credit scores make more claims. Insurers have convinced themselves that this statistic-while not true for every single driver-applies to a lot of people. In industry lingo, it’s called actuarial data.

But what does this mean to you?  Simple: If you have a low credit score, a car insurance company will infer a higher likelihood of making claims and, thus, charge you a higher premium.

Three Steps To Improve Your Credit

The best thing you can do is improve your credit score.  You should already be monitoring your credit and behave in such a way to maximize that number. But this insurance revelation should provide even more motivation for having a good credit score.

Here’s three steps to take to improve your credit and lower your auto insurance:

1) Get a copy of your credit report every year. Examine it carefully to make sure all the information is true and accurate.

2) Don’t assume that, even if you haven’t missed any credit card payments, your credit report will be fine. Many credit reports contain errors – some even report incidents for other people entirely. That’s why it’s important to check yours periodically.

3) Act in a way to keep your credit clean.

By taking these steps to improve your credit score, you’ll improve your chances of getting better financing on your house or car. In time, you should also pay less for your car insurance.

When To Drop “Full Coverage” Insurance

Written by Todd Clay. Posted in Research Last Updated: 08/17/2012

Four Questions To Ask Before Dropping Comprehensive And Collision On Your Vehicle

When You Should Drop "Full Coverage" On The Old Beater

When To Drop “Full Coverage” On The Old Beater

Knowing when to drop full coverage auto insurance can be tricky. As your car ages, keeping comprehensive and collision coverage may not make sense. At some point, you could be paying more for insurance than what your car’s worth. Since you’re aiming to save money, it’s worth exploring when to drop full coverage. You may be wasting money by keeping it.

“Full Coverage” Is Physical Damage Coverage

Before knowing whether to stop carrying it, it’s good to understand what “full coverage” is. Full-coverage insurance is another way of saying comprehensive and collision – with liability coverage. Comprehensive coverage (comp) covers the physical damage of your car when not involved in a collision. Shattered windshields, vandalism, even hitting an animal could all be damage covered by comprehensive insurance.

Collision coverage is different. If you are involved in an at-fault accident, your vehicle could be damaged. Collision covers the physical damage to your own car if you hit another car, a telephone pole, or another object and the accident is your fault. Both collision and comprehensive make up “full coverage”. Check out our article on Full Coverage Auto Insurance for more information.

There are several considerations to make before dropping full coverage. Make sure you review these questions before contacting your agent.

Question #1: What Do You Owe On The Car?

If you owe money on your car, then your finance company will probably require you to keep comp and collision. If you lease your car it’s usually the same deal. Before you drop full coverage when you owe or lease, talk to your bank first. Otherwise, keep both coverages until you fulfill your financial obligation.

Question #2: What’s Your Replacement Cost?

Comprehensive and collision covers the physical damage to your vehicle. If your vehicle is not worth much, it may be time to consider dropping full coverage. For instance, if it costs $400 a year for comp and collision and your vehicle is only worth $1600, think about dropping it. In four years time ($400 x 4 = $1600) you could have paid for the vehicle with the comp and collision premium – assuming you did not make a claim. Still, consider your driving history and cash in the bank before you call your agent.

Question #3: Should You Drop Collision or Raise Deductibles?

Collision is more expensive than comprehensive. On my policy for this period, I’m paying $23.70 for comp, but I’m paying $53.60 for collision. Granted, I carry a $250 deductible on comp and a $1000 deductible on collision, but that’s still a significant difference. If you’re a safe driver, you may consider dropping collision on an older vehicle.

Instead of dropping full coverage, you could also raise your deductibles. By carrying a higher deductible, you carry more of the risk associated with driving. That’s why it’s cheaper to have a $1000 deductible versus $250. If you want to save money, but don’t feel safe dropping comp and collision completely, just raise your deductibles.

Question #4: What About Full-Coverage Peace of Mind?

You may be looking to save money. But if you get nervous driving down the highway without comp and collision, it’s probably not a good idea to cancel the coverage. An anxious driver is a bad driver. Even if you’re not normally edgy, dropping certain coverages can be unnerving. Before dropping full coverage, just make sure you’re comfortable with the new arrangements. You will save money – but you may lose sleep. Weigh your options and make an informed decision.

One final thought: you could also just cancel collision. Since comprehensive is fairly inexpensive, you might want to leave it on your policy – even if it’s an older vehicle. Comprehensive covers your car it’s stolen, a tree falls on it, and more. You may not have coverage for physical damage in an at-fault accident, but it would cover other unforeseen incidents.

New Car Insurance

Written by Todd Clay. Posted in Research Last Updated: 04/10/2012

What you should know about getting insurance for your new car

Don't forget your insurance binder.

Don't Forget Your Insurance Binder.

So you’re considering a new car – now it’s time to get new car insurance. After striking a bargain at the dealer, getting all the discounts, rebates, and other incentives, you’re ready to sign the paperwork. Before you speed off the lot with your new wheels, you need to get some coverage. Here’s what you should know about insuring that new car.

Do You Have An Existing Policy In Place?

If you have an existing auto policy, then your new car should be automatically covered. The same coverage on your current policy usually extends to the new vehicle. Typically, you have 14-30 days to inform your insurance company about the new purchase – depending on your state and insurer. Call your insurance company in the first couple of weeks after buying the new car. That way you won’t drive uninsured – the sooner you call the better.

Bear in mind, your current coverage may not be the same coverage you need for the new car. For instance, if you don’t have comprehensive and collision on your current policy, it will not magically appear on the new vehicle. Also, if you’re financing the car, the bank usually requires comp and collision to cover the note. They’ll need a copy of the insurance binder describing your exact coverage before you take the keys.

But I Don’t Have a Current Auto Policy…

If you don’t have a current policy, you need to pick up some coverage. Most states require liability insurance. If that’s the case, your dealer will probably require a binder before you drive off the lot. In addition, you will probably need comp and collision if you’re financing the car. Your insurance company can provide a binder that shows both types of coverage.

Don’t wait until you’re at the dealer to get a new policy. Sign up for coverage before you buy the car. You can always post-date the coverage with your insurer – that way you’re not paying for insurance before you need it.

As always, we recommend getting several quotes before you get a new policy. Prices fluctuate and vary across the industry and by driver. To get multiple quotes from our online quote aggregator, go to…

Get Quotes for New Car Insurance

Budgeting Insurance For Your New Car

A new car can be more expensive than you expect. Make sure you can afford the extra hundreds of dollars for the payment as well as the insurance for the new vehicle. Because it’s a newer car with more value, insurance tends to be higher. Also, if you buy a sports car, be prepared to pay a handsome sum to insure it.

Bottom line, budget for your new car. From payment, to gas mileage differences, to the extra cost for insurance – a new vehicle can be an expensive toy. Even still, it’s a fun toy.

Any thoughts about insuring a new car? Feel free to leave a comment.

Bad Credit Car Insurance

Written by Todd Clay. Posted in Research Last Updated: 11/17/2015

How your credit score will affect your auto insurance rates – and what you can do about it.

Your Credit Report Could Affect Your Auto Insurance

Is there such a thing as bad credit car insurance? In a manner of speaking, anyone who has auto insurance with sub-par credit has it – and you probably know it. Bad credit raises your insurance premiums, as does no credit. Like it or now, credit scores are a determining factor for most new auto insurance policies.

Credit Scores Affect Your Auto Insurance Rates

Auto insurance companies rate risk in a “black box” manner. In other words, it’s very difficult to find out exactly why insurers charge the premium you owe. There could be 1,000 factors that determine how AAA rates you as a driver. Your insurance agent probably doesn’t even know all the rating factors and their weighting.

But one thing is certain – in many states, credit score is now a determining factor on how much you’ll pay for auto insurance. If you have an identical driving record with someone who has better credit, they’ll probably pay less to insure the same vehicle. You could even be denied coverage with bad credit.

Credit scores may affect your rates when you sign up for a new policy, but credit may diminish in importance after time passes. A few years ago, State Farm used credit scores when signing up new drivers, but not at renewals. Even then, credit factors were still less important than your driving record.

Reasons Why Insurers Review Your Credit History

Keep in mind, insurers are in the business of being profitable, not giving away all the premiums. Actuaries (those responsible for determining risk) have discovered drivers with bad credit or no credit are more likely to file a claim. That’s why they usually pay more. Kimberley Lankford at Kiplinger’s writes:

Insurers have found a strong correlation between credit scores and insurance claims. People with low scores are more likely than people with high scores to file claims. And when insurers looked more closely, they discovered that people who made late payments were the ones who tended to have more claims. They didn’t find as strong a correlation with other factors, such as taking on too much new credit, which lenders care about because they worry that you won’t be able to keep up with your payments.

Shopping Around With Bad Credit

If you have bad credit and you need car insurance, you ‘gotta bite the bullet’ and get some coverage. Yes, you’ll probably pay more for it now. But, the cost will be negligible if you get into a claim situation – especially when you’re at fault.

We recommend getting several quotes from major insurers. You can always call a few companies to get prices. To make it easier, you can also use our Online Quote Aggregator to get a few quotes fast

Get Auto Insurance Quotes With Credit Issues

Dealing With Bad Credit And Car Insurance

If you’re denied coverage for credit reasons, you still have options. According to the Fair Credit Reporting Act the insurance company must provide the name and address of the reporting agency. Write the agency for a free copy of your credit report.

If you’re already insured, you should address your credit issues for the next time you shop. Order a credit report from one of the major reporting agencies. Address any outstanding issues on the report, pay all your bills on time, and manage your expenses. If you don’t have credit, a bank debit card might be able to help you establish credit – ask your banker or financial advisor.

Any thoughts on bad credit car insurance? Feel free to leave a comment.

Progressive Price Comparisons: For Real?

Written by Todd Clay. Posted in Research Last Updated: 04/10/2009

How my experience doubled my suspicions about Progressive’s Competitor Comparison feature.

Flo May Have Had Too Much Caffeine

I don’t know about you, but whenever a company gives me competitor prices, I’m guarded. Think about it. If you go to a Target to buy some Frosted Flakes, they’re priced at $2.99 a box. Right underneath the tag, you also see Walmart’s price at $3.50 – doesn’t it make you wonder? Maybe the comparison shopper snuck into Wally World a few months back, or maybe they never went at all. Regardless, I usually don’t trust companies’ comparison prices.

That’s why I’ve been cynical about Progressive’s claims. If I get a Progressive auto insurance quote for $600, then I get a GEICO price from Progressive for $500, why would I buy from Progressive? What motivation does Progressive have for showing a lower price? In addition, as a former Agent, I know Progressive is not privy to GEICOs or anybody else’s proprietary underwriting guidelines. They could backward-engineer it to an extent, but it won’t be completely accurate.

Still, it doesn’t stop Progressive from advertising about it.

Progressive Price Comparison Commercial

My Experience With Progressive’s Competitive Comparison

In my investigative journalism-mode, I hopped over to Progressive’s site (writing April 2009). Once again, I was impressed with their interface. Of all the online auto quote systems I’ve used, Progressive’s website has been the most impressive. It’s quick and easy to navigate. I got another auto insurance quote within minutes of filling out the form.

But I didn’t care about a quote this time. I wanted to know about competitor quotes. After all, I had just finished shopping my rates a few months back. I knew the ballpark estimates from other companies. Would Progressive’s supposed comparison price even be close to State Farm’s, Allstate’s, or GEICO’s? I was still doubtful.

After getting my quote, I noticed a small box off to the right side of the page: “Compare Auto Rates”. I clicked on it, and followed the directions for competitor rate quotes. Lo and behold, this is what Progressive wrote…

Progressive’s Apology

We apologize, but we cannot provide comparison rates for your situation.

Our goal is to provide accurate comparison rates, which are based on rates other companies publicly file in your state. We are unsure what certain companies may charge you for the following situation(s):

* One of your vehicles is not listed in a company’s rate filing.

* We cannot provide a rate for your most recent insurance company since your renewal rate is often different than the rate offered to new customers.

* Comparison rates for which you may qualify are currently being updated in our system.

Please contact other companies directly to find the rates that apply to you.

This single negative experience did nothing to bolster my confidence in Progressive’s competitor comparison feature. Maybe it works 99% of the time. However, it happened to be broken the one time a consumer car insurance website came calling. Sure, one negative experience shouldn’t taint an entire company, but it usually does. Maybe I should follow Progressive’s advice and contact another company for a quote.

If you have any experience with Progressive’s quote comparisons, feel free to leave a comment.

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