March 16, 2023
If you own a car, your auto insurance premium is riding on how good you are at paying your bills on time, and other signals of financial health.
According to Bankrate.com, the average auto insurance premium this year is about $2,014 for someone with a good credit profile. But if your credit-based insurance score (it’s related to your regular credit score) is in the “excellent” tier, the average annual premium cost is $250 lower. If you have a 2-car family, working on improving your credit profile could save your household $500 a year if you go from good to great.
Most states allow insurance companies to consider your credit profile when determining the premium you will be offered. Only California, Hawaii, Massachusetts, and Michigan prohibit or restrict the use of your credit data in figuring out premiums.
If you live in a state where your credit can be used to determine your auto insurance premium, I think you’ve now got yet another reason to work on improving your credit. On-time bill payment is key. So too is whittling down any unpaid credit card bills.
If you’re in line for a tax refund, using it to reduce your credit card debt is not just good for auto insurance, it’s a really smart move if you are paying a high interest rate. Just promise me you won’t turn around and use your credit cards to buy more “wants” than you can afford.
And for those of you who anticipate buying a car this year, I sure hope you will focus on the insurance cost as part of your buying process. A fancy car can cost $500 more a year to insure than a less flashy car.