Reader question:
I’ve just received an offer for a student credit card, and I’m thinking about taking it. But I heard that credit affects your car insurance rates. Is that true?
Emerson
Yes, it is.
Recently, auto insurance companies changed the ways they rate premiums. Now, instead of only taking into account things like age, gender, type of car, and driving record, a plethora of factors determine what kind of quote you’ll get on your car insurance premium, and one of those factors is your credit rating. Because of this, people are often told in car insurance advice articles to have good credit if they want a good insurance quote. This isn’t very helpful for most people who have already built a credit history, be it good or bad. Most people with good credit aren’t going to let it go out of control, and telling someone whose credit is shot due to thousands of dollars in medical bills isn’t going to help them get anywhere.
But the one demographic where the advice does make a little sense is with young people. Most teens, college students, and others in their late teens and early twenties either haven’t built any credit history, or have very little. Therefore the exhortation still works, so listen closely as I say: keep your credit in good standing! It’s hard when you’re a student and probably making criminal wages, but living with roommates and minimizing you’re expenses should help you keep up on your bills, and if you’re able to do that you can keep up your credit rating and save yourself a lot of headache in the future.
Credit is especially important when it comes to auto insurance. You’re not likely to get outright denied for insurance when you have bad credit like you might for a credit card, but bad credit ratings have a direct effect on the amount you pay for insurance. If you have a bad credit rating, it is almost one hundred percent certain that you’ll be paying high rates for car insurance, even after you’ve passed the age of 25.
So go ahead and accept that student credit card, because it’s great to start building your credit early. But be careful with it. Don’t max it out. Use it only for emergencies or spend so little that you are able to pay it off in full every month. If you don’t do it right, it’ll stay on your credit report, and thus visible to insurance companies and others, for years, so don’t let it get out of hand.
Cheers,
Fashun Guadarrama.