Millions of Americans are well aware of the many ways in which their credit standings and the way they handle their accounts will affect their ability to borrow in the future, as well as other aspects of their finances. However, something they may not know is that it can also lead to higher costs for something as simple as driving their cars in everyday life.

While it may not seem logical at first blush, your credit standing is often used to determine whether you’ll be eligible for auto insurance, and even how much you’ll pay for coverage. The reason for this is more or less the same as the reason why having a low credit score will mean you might not be able to qualify for the kind of financing you want, and why you’ll probably pay more in interest charges and fees when you do qualify: Your rating is considered a predictor of your ability to pay your bills every month.

Why does this affect you?
Lenders and auto insurance companies alike obviously have a significant interest in whether you’ll be able to pay your bills or premiums on time and in full every month, and thus will use your credit history to determine whether you’re likely to be a worthwhile and relatively sound investment in the future. If you fall somewhere between too risky and a safe bet, you will likely have to pay more for coverage or the loan itself as a means of ensuring that the account is a bit more protected from instances of non-payment in the future.

For these reasons, you’ll need to make sure that your credit standing is as good as it possibly can be to make sure you’re getting the most affordable auto loans and insurance you possibly can. And if you’re lagging behind, you’ll need to determine the best path possible when it comes to repairing your damaged scores.

What you’ll need to do
Again, because credit scores are used to predict simply whether you will be able to avoid falling behind on your bills, it naturally follows that the single largest portion of those ratings — accounting for a full 35 percent all by itself — is how consistently you’ve been able to meet all those deadlines in the past. Because this makes up such a significant part of your score, even one missed deadline out of the many credit-related bills you probably have to deal with every month can deal you a big blow, and drop your scores by as much as a hundred points or more.

For this reason, you’ll need to keep up with your payments every month on every account. And if you do slip up and miss a deadline, it will take several months or more of on-time payments to return your standing to where it was before the mistake, which may be more difficult because of the penalty fees and interest rates that could be applied to your accounts in the event of a late payment.

Meanwhile, the second-largest factor in setting your credit score is one that likewise makes a lot of sense when you consider why it’s calculated in the first place. Having a large amount of debt relative to your credit limits will serve to diminish your score because this factor — known as “credit utilization ratio” — makes up another 30 percent of your score. For this reason it would be wise to keep your debts as limited as possible, potentially by making larger monthly contributions to your accounts for some time prior to applying either for insurance or an auto loan. By doing so, you will be able to enjoy not only the financial benefits of lower-cost monthly payments, but also drive your credit score higher.

A few other factors, such as the average age of your various lines of credit (older being considered better), the kinds of account types you have (keeping as many different ones as possible is preferred) and the number of times you’ve applied for credit in the past few months (as few as possible), round out the remaining 35 percent of your score.

One last thing
Of course, when you’re trying to build up your credit as much as possible — regardless of whether you’re pursuing an affordable auto loan, car insurance, or even another type of loan altogether — one aspect you should always keep in mind is the importance of regularly checking your credit reports. By doing so, you may be able to determine whether any potentially unfair markings are having an undue negative impact on your scores. If these are discovered, you might want to work with a credit repair company, as this may allow you to get the issues sorted out as easily as possible.