The Surprising Reason You Might Pay More for Auto Insurance

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  • Auto insurance is an expense vehicle owners need to budget for.
  • While there are certain obvious factors that could cause you to get stuck with higher premiums, one factor might catch you off guard.

Your premiums may be higher for one shocking reason.

There's a reason buying a car isn't a decision to take lightly. There are numerous costs associated with owning a vehicle that extend well beyond your auto loan payments. These include maintenance, parking costs (depending on where you live), and car insurance.

When it comes to buying auto insurance, there are several factors that could result in higher premiums. Being a newer driver, for example, could leave you stuck with higher premiums, because insurers may feel your lack of experience makes you more of a risk.

Similarly, a driving record that's loaded with moving violations could make car insurance more expensive for you to secure. If you have a history of speeding, it's easy to see why an auto insurer might impose a higher rate for coverage.

But while these may be obvious reasons for higher auto insurance bills, there's another lesser-known factor that could cause your costs to rise -- your credit score. And if your score is poor, you could get stuck paying up for a car insurance policy.

Why do auto insurers care about credit scores?

When you're borrowing money to buy a car, it's easy to see why an auto lender might check your credit. After all, that lender wants to get repaid, so it needs to see how much of a borrowing risk you are.

When you buy car insurance, though, you're not borrowing money. Instead, you're paying money in exchange for a service. As such, you wouldn't think your credit score would play a role in the premium rates you're presented with.

Auto insurance companies in some states can take your credit score into account when determining what rate to charge you -- even though that practice is banned or limited in certain parts of the country. While your credit score won't be the only factor insurers use when making that determination, poor credit could result in higher premiums.

If you think you'll be buying a vehicle soon, it pays to work on boosting your credit score. Doing so could help you not only snag a more competitive rate on an auto loan, but also potentially save money on car insurance.

How to boost your credit score

There are different steps you can take to raise your credit score. First, read how credit scores are calculated. That information alone could help you make savvy decisions that lead to a better score.

One of the most important things you can do to raise your credit score is pay all of your bills on time. Additionally, if you have a lot of credit card debt, whittling your balances down could help that number improve.

It also pays to check your credit report and make sure it's free of errors. If your report lists a late payment you actually made on time, and you get that mistake corrected, it could cause your score to increase substantially.

You'd think your bill-paying and borrowing history wouldn't impact what you're charged for auto insurance. But now that you know your credit score could play a role in determining your premium rates, you can take steps to boost it -- and make vehicle ownership less expensive.

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