If you are a recent college grad branching out on your own, you may be looking at implementing all of the protections an adult life necessitates such as home owner’s insurance and car insurance.  As a young driver, finding the best deal on car insurance is important so that you are not overspending on the policy yet are still getting valuable protection.

What you may not know is that the majority of auto insurance companies determine the rate to give you based in part on your credit score.  They use your credit score as well as your driving record and number of claims to create an insurance score.  They use this score in part to determine your insurance premium price.  Whether it is correct or not, they believe that if you pay your bills on time and maintain a good credit score, you will be less likely to have accidents and file claims.  On the flip side, if you are late with your credit payments or are currently behind, they see you as a greater risk and more likely to have accidents and file claims.  As a result, you will pay more.

Learning that your credit score affects so many aspects of your life financially, including whether or not you qualify for car insurance and how much you will pay, tends to panic people.  At this point, you may wonder, “How do I fix my credit?”

Fixing your credit does take time and effort, but it is well worth it because the higher your credit scores, the less you pay in auto insurance as well as the interest on auto loans.

There are two important steps you can take to fix your credit:

First, make sure all payments are made on time, and try to make any account that is delinquent current.  If this means working overtime or taking a second job, that may be what you have to do.  Yes, working extra hours may be tiring, but you only have to do it until your credit is improved and you are able to live within your means.  In return, you will get much better rates on loans and insurance, which will save you money over your lifetime.

Second, pull your free credit report from annualcreditreport.com and make sure there are no errors.  If you find errors (and you probably will since the majority of credit reports contain at least some errors), fix them as quickly as possible.  This small step can make an immediate difference in your credit score.  Combine this step with the first step, paying on time and making your accounts current, and you will soon find your credit score increasing.

While auto insurance is a necessity, how much you pay for it is negotiable.  As a young adult, you already pay more for your policies than drivers 10 or 20 years older than you.  Don’t let bad credit make you pay an even higher rate.  Instead, fix your credit and benefit from lower premiums.

Melissa Batai is a freelance writer and mom to three children ages 7, 2 and 1. She blogs at Mom’s Plans where she shares how her family is learning to live a fulfilling life on less.