Many people scour the market for affordable insurance policies. After all, paying the cheapest premium can save hundreds of dollars every year. However, many people fail to realize their credit plays a significant role in securing a more affordable premium.
Insurers believe individuals with better credit will have less frequent and less expensive losses over time. Because of this, better credit leads to lower premiums and more affordable policies. Whether you’re purchasing insurance for the first time or investigating ways to reduce your current costs, it’s best to know what matters to insurers. Follow these tips to improve your credit and lock in that affordable rate.
Check your credit report
It’s good practice to check your credit report once a year. If you haven’t done this in awhile, request your free yearly report here. Scan your report and make sure there are no discrepancies. Catching and correcting mistakes on your report is necessary to maintaining a clean credit history.
Your credit score reflects your financial history on this report. With the use of sophisticated algorithms, a three digit number is generated to serve as a guide for lenders when assessing your level of risk. The scale ranges from 300 to 850, with the best scores being between 750 and 850. Because your credit score directly relates to your credit history, it is critical to check your report and investigate any mistakes or discrepancies.
Maintain a Checking or Savings Account
Maintaining an account balance in a checking or savings account over time shows financial discipline. Managing bills with these accounts indicates your ability to budget money and plan for future expenses. Avoid overdrafts as they can incur fees and negatively impact your credit report.
Checking and savings accounts also allow you to save money and create an emergency fund. Unforeseen automotive or medical bills can be costly, but budgeting a portion of your income serves as the first line of defense against these financial obstacles.
Apply for a Credit Card
When applying for credit cards, avoid applying for multiple cards at once. Each application requires a credit check and multiple checks within a given period can reflect negatively on your credit history. Also, avoid cards offering lines of credit through retail stores. Although they are easier to obtain, they fail to improve credit as efficiently as the major card companies VISA, Discover, and Mastercard.
Major credit companies can be picky about who they approve. Secured credit cards are a great option as an intermediary step for those with poor credit. Unlike unsecured cards, these accounts require cash collateral before opening a line of credit. Managing a secured credit card for 12 to 18 months while making responsible payments should help you transition to a card from a major credit company.
Use Credit Cards Responsibly
Responsible use of credit cards indicates another aspect of financial stability. Keep in mind that balances do carry over into the next month and incur interest. For this reason, it is best to pay your balance in full each month. Aim to use only 10% of your available credit limit and 30% as an absolute max. Should you have multiple cards, rotate their use and never let cards sit unused for extended periods of time.
Take out an installment loan
An installment loan represents another credit line that helps demonstrate financial maturity. These loans typically take the form of car loans, personal loans, or mortgages. When contemplating a monthly payment loan, assess your income and current expenses. Make sure you are prepared to make payments on time for the entire life of the loan.
Remember, repairing your credit score takes time and discipline. This process does not happen overnight, but the process is well worth the reward. In addition to cheaper insurance rates, improving your credit leads to better financial security and larger lines of credit for future expenses.