What You May Not Know About Your Credit
By Mike Wayman
Many people do not understand how their credit score works or how it affects their ability to borrow money, finance large purchases, even obtain auto insurance.
For instance, having no credit at all is not better than having bad credit. It is recommended that even if an individual has no need for a credit card or charge account that they obtain one and use it occasionally. This establishes a pattern of purchasing and repaying on credit without late payments or over-charges. This practice actually improves your credit score, even if you had the cash in your pocket to cover the purchase you made with a charge card. Likewise, it is best to keep an account open, even if you choose to use it infrequently. If a charge account incurs a high annual fee, you must decide if it is worth the cost of maintaining the account.
It is also a myth that only people who have your express permission can view your credit report. Actually, anyone who knows your social security number can access your credit report, including potential employers. Frequent inquiries into your credit report, such as when shopping for lenders for a home or auto loan, also do not hurt your credit score as some mistakenly believe, nor does employing the services of a credit-counseling agency to help manage and pay off existing debt. Knowing these things can help you to manage your credit wisely and succeed in maintaining financial stability.
Yes! Bad Credit Can Affect Your Car Insurance Rates
By Mike Wayman
Not only your ability to obtain a home mortgage or credit card depends on your credit rating, but now your auto insurance rates also can be affected either positively or negatively by your credit score. For about the last ten years, insurance companies have used applicant’s credit reports to help determine the potential risk of providing auto insurance. A negative credit rating is perceived as a higher insurance risk, while a higher credit score is perceived as a lower risk applicant and therefore could very well result in lower insurance rates.
The problem is that there are inconsistencies with this whole idea. It seems erroneous to assume that if a person has a high credit rating, hence it is assumed they either earn a high wage and/or have few expenses, that they are necessarily a more responsible or capable driver. Conversely, it seems ridiculous to think that those who earn lower wages or who have encountered financial difficulties resulting in a lower credit score will automatically be poor drivers and thus a higher insurance risk. But this is the way insurance companies are viewing credit histories with regards to prospective clients.
Of course, driving history is indeed considered as well, so maintaining a clean driving record will help even if your credit rating is low. Avoid accidents, pay any citations in a timely manner, and hope that your insurance agency will weigh more heavily on the side of your ability to drive than on the money in your pocket.
