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The only way that auto insurance companies make money is to correctly assess their customers' risk so that they know what rates to charge. And the more you know about what factors the auto insurance companies look at, the easier it is for you to take action to keep your premium low. And an increasingly important factor in setting insurance prices, is your credit.
Auto insurance companies have studied millions of their customers and have found that, on average, people with good credit file fewer and less expensive claims than people with poor credit. So now, along with driving carefully, it's also important to manage your money carefully.
The importance that auto insurance companies give your credit rating varies, but it's estimated that over 90% of all companies use it to some degree. Some will use it to make minor adjustments to their prices. Others use it as their sole criteria and will deny you insurance if your credit is inadequate.
When auto insurance companies rate your credit, they generally calculate a credit score. The score is a statistically derived number that gives a grade to your credit. It takes into account such things as your bill-paying history, your overall debt, the number of credit accounts you have, and how long you've had credit. Naturally any serious incident like a bankruptcy or foreclosure will damage your score.
Although it takes time, anybody's credit can be improved. So if your credit isn't the greatest, improving it will get you a lower insurance price. But after you get your quotes from the auto insurance companies, you need to do several things. The first is to ask the company you select if and in what way your credit is affecting your premium. If it is having a negative effect than ask what you can do to improve it. And when you've improved your credit, ask the company to recalculate your premium.
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