Credit ratings and car insurance, two staples of modern life and two things that cause many people no end of worry! And, just to add to that worry, insurance companies are now using your credit score to help determine the cost of your car insurance!
Which means that you could be a model driver, with no claims or convictions and may never even have had so much as a parking ticket, but if you mess up your balance transfers or miss a couple of credit card payments shortly before renewing your car insurance, you could find yourself paying an inflated price for your premium!
The fuzzy logic behind this is an assumption that if you’re careful with your money you’re careful with your car…and, conversely, if you’re reckless with your money you’ll be reckless with your car!
This is a system that has been in place in the USA for some time now and the assertion that a reckless spender is a reckless driver is one that was supported by Donald Hanson of the National Association of Independent Insurers.
Mr Hanson said: “Research indicates that people who manage their personal finances responsibly tend to manage other important aspects of their life with that same level of responsibility and that would include being responsible behind the wheel of their car or being responsible in maintaining their home.”
So, according to Mr Hanson, if you have a bad credit score you’re a rubbish driver and you live in a slum!
And, as usual, where America leads the UK follows and so many people that are already in financial difficulty are finding that they’re being squeezed for even more money by this, seemingly arbitrary, pricing system.
But this system is already in place so it’s worth knowing factors that can affect your credit score so you can avoid having it adversely affected.
Many factors affect credit ratings
Below are a few factors that can have an effect on your credit rating, some being more obvious than others:
- Missing or making making late payments on credit card bills, finance arrangements, utility bills or mortgage payments (in the past only missed payments were noted but now it’s late payments too).
- Being close to the limit on your credit cards or overdrafts.
- Having a short credit or no previous credit history.
- Applying for a number of credit lines in a short space of time.
- Not having a variety of credit lines, for example, instalment loans (fixed payments such as car finance) and revolving loans (unsecured borrowing such as credit cards).
- Declaring bankruptcy.
So if any of the above relate to your current circumstances then you could be further penalised by your insurance company issuing you with a higher premium.
But there is a fairly simple, if not failsafe, way around this…buying your car insurance online.
Brokers don’t do credit checks
Many companies that advertise and broker do not undertake credit checks as part of their online service so, if you buy car insurance via a comparison website, there’s a good chance that your credit score will not be factored into the price of your premium.
The failsafe, though potentially less straightforward, way around this is to maintain a healthy credit score and not run up unsustainable levels of debt!
In any case, it’s always a good idea to keep your finances in check and buying car insurance online is often the easier option!