How to save money on your auto insurance premiums

People will go out of their way to save 10 cents on a loaf of bread, but they won't do a thing to save money on their auto insurance. One of the easiest ways to lower your auto insurance is to fix your credit score.

Insurance companies have pulled your credit for the past several years to determine if you are a good credit risk or not... and if you're not, if you have bad credit, you're probably paying more than you should for your car insurance.

The three major credit reporting bureaus are TransUnion, Equifax and Experian, and they might be holding outdated or erroneous information about you in their credit files. It's time you started saving money on your auto insurance, and today is the best day to fix your credit score by disputing errors in your credit report!

Your insurance agent may not have told you, but the insurance company he or she is working for very often will judge your credit information along with other personal details to come up with your monthly auto insurance premiums.

Firms like ChoicePoint are hired to judge your credit-risk. Their assessment will rely on statistics that predict potential losses they may incur if they write auto insurance policies on people with bad credit.

Companies claim that their stats back up the theory that people who are careful with their credit and finances are careful people in general, and tend to drive more carefully, tend to file fewer auto insurance claims, and they can anticipate what insurance claims you might file with them based on your credit history.

But now you can do something about it: Fix your credit score and save money on your auto insurance!

Since so many insurance companies are now using your credit score as part of the criteria for determining the cost of your insurance premium, it pays to know how to raise your FICO credit score. To ensure you're getting the best deal possible on your auto insurance coverage, make the decision right not to start paying all your bills on time and challenge every credit report error that you uncover.

If you have a good credit score, your auto insurance company will believe that you are a responsible person. You will be eligible for some of their lowest auto insurance rates.

As they believe you are responsible, they will assume that you will drive carefully and that on average, you will tend to have fewer accidents that will cause them to pay out claims. Because of this, you would enjoy lower monthly auto insurance premium payments.

There is a school of thought that a seasoned credit history is more helpful in getting you lower auto insurance rates than a new credit account.

Why do insurance companies use insurance scores? Simple. Insurance companies are in the busines of making money hedging their bets that the insurance you are buying will seldom be needed.

To win their game, they have to have a way to predict risk accurately so that what consumers pay for insurance reflects its cost.

According to Lew Sichelman who wrote on the subject in 2006 for Marketwatch.com:

"Although some people can't fathom how such a correlation is possible, many insurance companies believe that an "insurance score," which is a computer-generated numerical ranking based on a person's credit history, is a good predictor of future insurance claims. And they have the actuarial data that shows how someone who does a poor job managing his finances is more likely to file a claim."

The Insurance Information Institute has reported their own studies that people who manage their finances well tend to be better managers of other important aspects in their lives, such a driving a car or being careful out and about or while working and playing.

"Drivers pay more for auto insurance in states with significant urban populations, greater traffic density and a higher cost-of-living. Tort liability and other auto laws as well as each state’s auto body repair labor costs, liability coverage requirements and theft rates also have an impact on auto insurance prices," the Institute reported.

How to save more money on auto insurance? Establishing a solid credit history can cut your insurance costs.

To protect your credit standing, pay your bills on time

don't obtain more credit than you need

keep your credit balances as low as possible

check your credit record on a regular basis to know what's in your credit files

have any errors corrected promptly so that your record remains accurate.

It pays to maintain good credit. Insurers will likely continue the practice of using credit-based insurance scores to determine your auto coverage premiums. This is because people with good credit tend to file fewer claims. All else being equal, a person with a good insurance score—credit information used by an insurer to predict claims—may pay much less for insurance than someone with a poor score.

So turn the tables on them. Take steps to fix your credit yourself and improve your credit rating! It will help you save money!