A credit score is essentially a tool to assess how fiscally responsible an individual is. Your credit score plays a significant role in determining the rates for insurance policies.
If your car insurance rate is high and you want to get it lowered, you must choose to improve your credit score.
Do you know about credit-based insurance scores?
Your credit score is a figure between 300 and 850, which highly represents your risk factor as a borrower. So if you have unpaid credit card bills, tax liens or debt collections, your score will crash.
How do credit scores affect your car insurance?
Several auto insurance companies use credit-based insurance scores to determine the risk while offering insurance quotes. Insurance companies look at credit scores to understand how trustworthy the person is regarding timely premium payments.
However, different car companies use other criteria, and a high credit score plays a major role in lowering your insurance rate for your car.
Factors Affecting Your Score
Factors that are favorable:
Open accounts in good standing
Long-lasting credit history
There are no late payments or past due accounts
Factors that are adverse:
Late payments history
Too much debt
High number of inquiries
One must keep the above factors in mind.
The Two Types of Credit Inqueries
It is essential to understand the two types of credit inquiries, and these are hard inquiries and soft inquiries.
Hard inquiries are those made by the lending institution as part of the credit application process. These are a factor in determining your credit score because they convey the frequency and recentness of your credit applications.
It is a soft inquiry when your credit report is reviewed by you, by lenders reviewing existing accounts, or by prospective lenders for pre-screening. A soft inquiry will not negatively impact your credit score.
It might take some time to improve your credit score completely, but it is worth the effort because you receive a lot of benefits.