How Credit Scores Affect Your Car Insurance

Besides the type of vehicle, and accident or claims history, your credit score is an important factor to consider when it comes to how much you will pay for car insurance.  Insurance companies tend to use your credit history to help set your rate.

Factors that affect your car insurance rate

Your driving history has a huge influence on the risk your insurer undertakes by taking you on as a driver. Other risks include where you park at night, the type of car you drive, your gender and age. Another factor to consider when calculating your rate is your credit score. The lower your credit score is, the higher the probability for the insurer to incur losses.

The use of credit scores is most likely going to improve the risk of loss by the consumer. In other words, high-risk consumers will pay less, and lower-risk consumers will pay more on their premiums. Keep in mind insurance companies are in business to make a profit. In other words, they must be ready for any future losses and cover their expenses while also making the business more profitable. Based on all the information they can gather, including the credit score, they will set premiums for your car insurance.

Your credit scores and insurance score

While credit scores and insurance scores are determined differently, the same negative actions may hurt both. However, they may influence your insurance and credit score differently. Some examples include, not paying your bills on time, using too much available credit, applying for multiple new credit cards, and having accounts in collection.

Mitigate the costs

The use of credit scores is legal except in California, Massachusetts, and Hawaii. As usual, you may need to shop around before determining what’s best for you. Insurance companies differ on how they calculate rates, so the credit score factor may be less of a problem in some companies than others.

Improving your auto insurance score can help you lower your rates, but all other factors are equally important. You can create good habits that could help you improve your credit score such as building a good and long credit history, keep your credit use low, don’t miss or make late payments, and have your open accounts in good standing.

The good news is some insurers may overlook your credit information under special circumstances or special life events such as a severe illness, divorce, death of a family member, and so on – you will have the chance at getting back on your feet. Contact your insurer to find out whether they have a program that could help you lower your insurance premium.

If your credit score is bad, you can shop around for better rates with the help of a licensed agent meanwhile you work on increasing your credit score. Request a quote here. 

Sources
  • https://www.consumerreports.org/cro/car-insurance/credit-scores-affect-auto-insurance-rates/index.htm

  • https://www.ftc.gov/sites/default/files/documents/reports/credit-based-insurance-scores-impacts-consumers-automobile-insurance-report-congress-federal-trade/p044804facta_report_credit-based_insurance_scores.pdf

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