Here is the short truth: your credit score absolutely affects your insurance rates. This is because, according to Bankrate.com, a low credit score or poor credit history marks you as a “high risk” investment for most insurance companies. From a business perspective, it makes sense. After all—if you haven’t paid your other debts, what guarantee do they have that you’ll pay your premiums on time each month?
On a personal level, though, it can feel phenomenally unfair. You have to have insurance.
It’s the law! There are steep penalties for being caught without insurance. Having to pay a higher rate when you are (likely) already in a terrible financial bind feels more like a punishment for you than a safety net for them.
So what do you do? You need insurance. Your credit is terrible. You can’t afford astronomical setup fees or down payments. How do you cover yourself properly without being forced to move back in with your parents?
1. Start Working On Your Credit
You knew we were going to say this, right? Working on improving your credit score is one of the best things that you can do for yourself and you shouldn’t put it off for one more day. Yes, you’ll have to buy insurance in the meantime but think of it this way: by the time the policy you buy today expires, your credit could be fixed enough to guarantee you a better rate!
Fixing your credit can be time consuming and frustrating but it is not impossible.
2. Look For Low Up Front Fees
Many companies like to compensate for a customer’s poor credit with increased down payments and setup fees. They do this so that they can accurately say things like “poor credit won’t affect your monthly payments!” in their advertisements. Some of you might be able to afford this balloon payment.
If you can’t, it is definitely in your best interest to do some research. Don’t bankrupt your savings just because one company promises that your credit won’t affect your monthly payment. There are insurance companies out there that are set up to work with the credit- challenged who don’t charge exorbitant set up fees. You just have to dig through Google for a little bit to find them.
3. Mind Your Deductibles—and their fine print
It is in your best interest, especially if you are strapped financially, to go after the lowest deductible possible. This probably flies in the face of your plan since most companies will offer incredibly low monthly fees in exchange for agreeing to a huge deductible.
Here’s the problem with that logic. Regardless of whether or not an accident is your fault, you will still have to pay for repairs to your car. Yes, your insurance company will try to recoup that money from the at fault driver, but that doesn’t mean you won’t have to pay now. The lower your deductible, the less out of pocket money you have to come up with to get your car back on the road.
Companies like Acceptance Insurance have a lot of specific information on deductibles, claims and coverage. Make sure to research your options to make sure you choose a plan that is right for you and your wallet.
4. Beware Short Policy Terms
Many people go after short policy terms because they are cheaper. Here’s the truth: fixing your credit takes time—it will take at least three months to fix any mistakes and longer to resolve debts and dispute collections claims. Plan for your credit repair to take at least a year.
The upshot of buying the longer term policy is that your monthly payments are typically lower than they would be for a short term policy. Plus, you won’t have to worry about scrambling around again in a few months’ time.
In closing, it’s true what they say: your credit absolutely affects your insurance rates. It is not, however, an excuse for being uninsured. Use these tips to help you get the best policy possible for your credit and your budget.