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Bad credit can hinder your insurance possibilities

May 30, 2014

Sometimes it feels like you have to be a math whiz to understand all of the financial mumbo jumbo surrounding insurance rates. But it doesn't take a genius to understand that a low credit score can impact your ability to land a good policy or pay a low annual premium.

After all, a higher credit score typically signifies that you are less of a risk, meaning you are more likely to get credit or insurance and possibly pay less for it.

However, don't fret if your credit score is less than ideal. There are numerous ways to improve your credit score and overall financial well-being, but it takes time and restraint to boost a poor credit standing. Here are a few tips to consider when trying to improve your credit while landing the best insurance policy.

Understand your credit

A poor credit score can restrict your ability to land a good insurance policy.
Nancy Anderson, a contributor at Forbes, said one of the initial steps you must take to improve your financial wellbeing is to get a better grasp of your credit card debt.

“The first thing you need to do to get out of debt is stop the bleeding,” Anderson said. “Many people still use credit cards and still try to take out loans.”

Anderson urges Americans around the nation to restrict their credit card usage for a few months. During this time, she said it's vital to pay off your minimums on time, which in turn will give you a better idea of how you need to live within your means. Once you start to recognize what you can or can't afford, you can start paying off the credit card with the highest interest rate, and go right down the line, which will greatly help your credit score in the long haul.

A credit score will keep financial information for several years, but it is weighted to give preference to recent activity. Once you've paid off your credit card debt, Anderson believes its a good idea to start an emergency fund. That way, if an unforeseen expense finds its way to your door, you'll be able to nip it in the bud without going back to your credit card.

Check for any errors

Credit score inaccuracies can happen to anyone. Anderson urges Americans to check their credit report to see if any errors are on it. She said you can visit AnnualCreditReport.com for one free credit report from the three major credit bureaus.

“Look for errors that may be dragging down your credit score,” Anderson said. “ There may be something that doesn't belong to you or something that's been settled and should be removed.”

If you don't see any errors on your report, the best way to improve your score is by limiting your credit usage to 30 percent of the available credit and paying off your payments on time. That means if you have $2,000 of available credit per month, try not to spend more than $600 on that card in any given month.