Here’s a handy reference for auto insurance terms and definitions to help you with this chapter.

Auto insurance score: Like a credit score, this score is based on information found in a consumer’s credit file. Insurance companies consider auto insurance scores when pricing policies. Having black marks on your credit report could really bump up your auto insurance costs.

Binder: A temporary insurance contract that provides proof of coverage until a permanent policy can be issued.

Bodily injury liability: The part of an auto insurance policy that pays for injuries you may cause another driver or pedestrian. It includes medical expenses and loss of wages.

Collision: The part of an auto insurance policy that pays to get your car repaired after a collision with another vehicle or an object, such as a fire hydrant or utility pole. It is collision insurance that will get your insurance company to seek out another driver’s insurance company to pay for repairs if they were at fault. A deductible amount will apply.

Comprehensive: This part of an auto insurance policy covers damages to your car caused by something other than a crash: a vandal breaks in, a tree falls on it or floodwaters engulf it. A deductible amount will apply.

Declarations page: The front page of an auto insurance policy listing the name of your insurance company, your policy number, your coverage, the cost of the coverage and your deductibles. This page also lists the vehicles insured on the policy as well as vehicle identification numbers (VIN).

Deductible amount: The amount of money a policyholder must pay before an insurance company steps in and pays the rest. Deductible amounts range from $100 to $1,000. The higher your deductible, the lower your insurance premium or cost. A higher deductible also means you’ll have to pay more money out of your own pocket if an accident, theft or another covered incident should occur.

Discount: A reduction in the cost of your auto insurance premium. Insurance companies offer discounts for everything from a teenage driver’s good grades to a car’s safety equipment, including airbags, anti-lock brake system and a security alarm.

Emergency road service: This part of an auto insurance policy pays for the cost of having your car towed after it breaks down.

It can come as a huge surprise to many people with spotless driving records that their car insurance rates are high — or they may be denied coverage — because they’re late with the Visa card payment a couple of times a year.

What, they might ask, does my tardiness in paying Visa have to do with my car insurance?

A great debate
It’s a highly debated issue, but many insurance companies and some academics feel strongly that a mediocre or bad credit rating means you’re a high risk. Many consumer advocates, state legislators, and state insurance regulators think not. The debate may go on for quite awhile because even the true believers admit they don’t know why the two are related — they just know they are.

Nonetheless, almost all auto insurers use credit information to decide whether to issue a policy on your car. In some cases they also use it to set the premium.

Bad credit, higher rates
A consumer with bad credit is going to pay 20 to 50 percent more in auto insurance premiums than a person who has good credit. On the other hand, having sparkling credit could land you lower rates, so you should shop around if you’ve got a glowing credit report.

To factor in credit ratings, insurance companies use either the Fair, Isaacs & Co. (FICO) three-digit credit score alone; order an “insurance score” from FICO; or create their own, proprietary score using FICO credit scores or FICO insurance scores and adding in their own underwriting criteria.

The companies generally do not look at your actual credit report. Instead, it receives your credit score or your insurance score from one or more of the three major national credit repositories, Equifax, Experian and TransUnion.

Insurance score likes stability
The two types of scores — credit and insurance — are quite different. An insurance score is going to be less concerned with your propensity to take on new credit and more interested in how long you’ve been managing credit. Insurance scores focus on issues of stability.

Ironically, someone with a flawed driving record but a clean credit record could pay less for auto insurance than someone with a spotless driving record but a spotty credit record.

So as with auto financing, it’s important to know what’s in your credit file and to make sure the information is accurate.

Bad news
The bad news is that while it’s easy to get your credit score, it’s almost impossible to get your insurance score. Companies are not required by law to hand it over, and most don’t.

If you’re having credit problems, it’s best to stick with your current insurer until your credit record improves. If you must shop for a new policy, ask the insurer if it uses credit data in the decision-making process.

If you live in a state with no-fault auto insurance, you need to understand what it does and doesn’t do.

No-fault requires drivers to carry insurance for their own protection, and places limitations on their ability to sue other drivers for damages.

First, understand that some states are called “no-fault” states and others are “tort” states, also called “choice” states.

Although laws vary from state to state, here’s the basic premise: When you have an accident in either a tort or no-fault state, your insurance company pays for any injuries you sustain.

No-fault state
When it comes to physical damage, if someone hits you in a no-fault state, your insurance company pays to fix your car and may then go after the other guy’s insurance company if your company believes it was the other party’s fault. Any other drivers involved will be covered by their auto insurance policies.

Tort state
If someone hits you in a tort state, you can have your insurance company fix it. Or, you can leave them out of the picture and have the other driver’s insurance company handle the details. That means you would not have to worry about reporting the accident to your insurance company or paying a deductible.

A little of both
No-fault was designed as an antidote to the traditional tort system in which the wronged party would sue the driver responsible for the accident to recover for bodily injuries. Under a pure no-fault system, neither party would be able to sue the other. However, no state uses a pure system because they’re leery of denying a citizen’s right to sue. Instead, all no-fault states use parts of both the no-fault system and the tort system (under which you’re financially responsible for the cost of damages you cause) by permitting lawsuits in certain cases.

If you want to make sure you have the best coverage for your needs, you want to find out which kind of system your state has.

No-Fault Insurance Mandated States

7. Pay without financing.
Pay six months in full, twice a year, rather than financing the premiums: Insurance is expensive enough without adding finance charges.

8. Buy a car with safety features.
Insurers give discounts for such things as anti-lock brake system, alarm and air bags, but not all devices are covered. Anti-lock brakes and basic air bags are not necessarily discount items anymore. Ask before you buy.

9. Move to a “better” ZIP code.
Although illegal in some states, insurers in states that do allow it offer better rates to drivers who live where theft and collision rates are lower.

10. Keep your driving record clean.
Nothing cuts an insurance premium more than a driving record free of citations, accidents or claims. And don’t think you can fudge on mentioning that fender bender. Computer systems have made everything instantly accessible to your agent.

5. Get married and get older.
OK, this isn’t something you can do overnight — and getting married to save on auto insurance is foolish — but it’s a reality that young singles pay more. Find out where the age breaks are on your insurance. If waiting a year means you fall into a lower risk category, it might make that new sports car affordable. The same applies if you plan on getting married soon. Wait to buy a new car until after the wedding and you could save a lot on insurance.

6. Install a car alarm.
Most companies give discounts for anti-theft devices. But don’t tell the agent you have one when you don’t. That could void the policy if you make a theft claim.