This post is contributed by Odysseas Papadimitriou, CEO of WalletHub.

How’s your credit score these days? If you’re like most people, you might not know. More than half of us haven’t checked our scores in the past 12 months, according to the National Foundation for Credit Counseling. On top of that, only about 38 percent of us have scores of 720 or higher, according to WalletHub data. In fact, the average person’s score is just barely “good,” at 668.

Why does that matter? Well, it means you might be missing out on a boatload of car-insurance savings. Car insurance isn’t a commodity that everyone experiences equally. Many different factors can be used to price insurance policies, including a driver’s age, accident history and, in most states, credit standing.

This might seem a bit curious at first, considering that insurers don’t really extend credit to their customers. But the explanation is actually quite simple: risk reduction. Statistics indicate that people with solid credit histories tend to get into fewer accidents and ultimately cost insurance companies less money than their more-fiscally-irresponsible counterparts. As a result, most U.S. insurance companies, including Esurance, use so-called “credit-based insurance scores” to help determine premium amounts. A few states, like California, do prohibit the use of credit data in car-insurance pricing.

Credit-based insurance scores aren’t quite identical to the traditional credit scores used in the context of lending, which are designed to predict problems repaying borrowed funds. But they’re similar in that both types of scores are based on information in your major credit reports. Which means the steps required to improve one are likely to produce gains in the other too. And savings could be the common by-product.

How to improve your credit score

Fortunately, getting your credit into top shape is actually pretty simple, though you won’t necessarily see results overnight. Here’s what you can do.

1. Review your credit reports for errors

About 1 in 5 people have an error on a credit report, according to data from the Federal Trade Commission. The wrong type of mistake could really hold back your score, so fixing it could result in a quick rebound.

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Order your free credit reports from a reputable source like AnnualCreditReport.com or WalletHub, and go through them with a fine-tooth comb. In particular, look for accounts you didn’t open and payments you made but weren’t credited for. If you find an error, you can then file disputes with the credit bureaus and, should the situation warrant it, take steps to shore up your fraud defenses.

2. Make on-time credit card payments

A credit card is the most efficient credit-building tool because it adds information to your credit reports on a monthly basis and doesn’t require you to go into debt (or even spend a dime, if you don’t want to). Your main goal should be to pay your bill on time, as this will largely dictate whether the information that gets relayed to your report counts in your favor or against you. So set up automatic monthly payments from a bank account if you’re forgetful!

3. Become an authorized user

Who you know can help you when it comes to credit building. Becoming an authorized user on a family member’s or friend’s credit card account can really speed up the credit-building process, giving you another on-time payment each month and plenty more available credit. Just make sure that person has great credit and is someone you can trust.

As long as you act on at least 2 of these tips, you’ll be in good shape. The trick is to monitor progress to ensure you stay headed in the right direction. You’ll probably be pleasantly surprised by how much you save in other areas of your personal finances too!


Odysseas Papadimitriou is CEO of the personal-finance website WalletHub, which offers free credit scores, full credit reports, 24/7 credit monitoring and customized money-saving advice.

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