How to Lower Your Insurance Rates if You Have Low Credit

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Insurance companies in most states can consider a credit-based insurance score when setting your insurance premiums. It won't be the only factor, but a poor credit history could be costing you money by way of increased insurance costs. Fortunately, in addition to raising your credit score, there are many ways to potentially lower your premiums.

1. Shop Around for a New Policy

Insurance companies consider a lot of variables when setting insurance premiums, including their current goals for growing their customer base. Although you might receive a discount for staying with the same company for a long time, it doesn't hurt to shop around.

You can compare insurance quotes online to see if a different company will charge you less for the same amount of coverage.

Even if you've prepaid for your current policy, you may be able to get a prorated refund if you cancel early and switch to a new insurance company.

2. Bundle Your Policies

Many insurance companies will lower your premiums if you purchase two or more policies from the same company. Bundling auto insurance with a renters or homeowners policy is common. You also might be able to bundle other types of insurance, such as life, boat or RV insurance, and save money if you have several vehicle policies from the same company.

3. Look for Other Discounts

You also might qualify for other types of discounts depending on the type of policy and the insurance company. Some of these might be applied automatically. But with others, you'll need to know about the discount and tell your insurance provider that you qualify.

Some common types of insurance discounts include:

  • Safety systems discounts: Investing in a home security system or anti-theft device in your car might lead to lower premiums.
  • Affiliation discounts: Alumni groups, military service members, employees of certain organizations and other membership-based groups might receive insurance discounts from partner providers.
  • Payment-related discounts: You might get a discount or avoid additional fees by signing up for automatic payments, electronic statements or paying your premiums annually or biannually.

Of course, some discounts will be specific to the type of insurance. For example, you might receive auto insurance discounts if you complete a defensive driving course, have good grades (if you're a student) or don't drive many miles each year.

You may want to call your insurance agent to discuss your situation and see if you might already qualify for any discounts. And ask about any changes you could make that will help lower your insurance rates.

4. Increase Your Deductible

Your deductible determines how much you have to pay before insurance helps cover expenses when you file a claim. A higher deductible will often lower your insurance premiums, but you might want to prepare to pay the deductible in case you have a claim in the future.

Putting some of your savings toward your emergency fund could be a smart move. You don't necessarily want to risk this money on investments, but you could still make money with your savings by keeping it in a high-yield savings account.

5. Lower the Coverage Limits

The insurance limit on your policy is the maximum the company will pay when you have a covered claim. There may be different limits for various types of coverage, such as liability and collision coverage limits with auto insurance. And dwelling and personal property coverage limits on a homeowners or renters policy.

Lowering your coverage limits can save you money on premiums. However, it can be a risky trade-off if your lower limits don't cover your losses after a major incident.

6. Change Your Coverage Types

You also might be able to lower insurance rates by dropping certain types of coverage or benefits.

For example, you might be paying for a roadside assistance plan with your auto policy that you could drop. Or, if you don't have an auto loan, you might drop collision and comprehensive coverage to save money. With homeowners insurance, flood, earthquake and sinkhole coverages may be optional.

You also might be able to choose between replacement cost and actual cash value coverage:

  • Replacement cost coverage tends to cost more because the insurance company will pay to replace the property.
  • Actual cash value only covers the current value of the property. For example, if someone steals your TV, an actual cash value will pay you based on the current market value of the TV, which might be a lot less than you need to buy a comparable TV today.

7. Improve Your Credit

In states where insurers are allowed to use credit scores to determine rates, improving your credit could also lead to savings.

Credit-based insurance scores are different from credit scores for lending, but they consider many similar factors from your credit report. In the long run, making on-time payments, paying down balances and paying off loans could help your credit.

Right now, you could focus on bringing past-due accounts current and paying off or settling collection accounts. If you have a high credit utilization ratio—using a large portion of your credit cards' available credit—paying down those balances may also help.

Monitor Your Credit

Check your credit to see where you stand, and monitor your credit reports and scores for changes. Even if you don't see an immediate impact on your insurance rates, a better credit score can have other benefits, such as helping you qualify for better offers if you need a loan or new credit card.

You can also compare auto insurance offers through Experian and get quotes based on your current coverage. Experian can help you switch and cancel your old policy, which could lead to a refund for prepaid premiums. If switching doesn't make sense right now, Experian can continue shopping for better options and notify you of new offers in the future.