Could my credit score affect my auto insurance premiums?
What is a credit-based insurance score?
Most insurance companies give you an insurance credit score based on your credit history. Your insurance credit score is not identical to your regular credit score, but it's close. The two are similar because your insurance credit score uses the same research information as your main credit score.
The key difference is that your standard credit score predicts how likely you are to repay debts and loans on time. But an insurance score helps companies determine which drivers are more likely to have an accident.
Does my credit score affect my annual auto insurance rates?
Not everyone has to worry about their bad credit influencing the price of their car insurance. It often depends on where you live—your insurance agent should be able to answer your questions about your state’s policies.
For example, it's illegal for insurance companies to use your credit history in California, Hawaii, Massachusetts, Michigan or Washington. A few other states, such as Maryland, Oregon, and Utah, have specific rules about how an insurer can use your credit score when deciding on the price of your insurance.
How does my credit score affect my auto insurance rates?
In states where credit scores play a role in deciding insurance rates, people with low credit scores are more likely to pay more for their auto insurance. A low credit score with some companies may give you a rate even higher than someone who's had an accident. The amount that a rate may increase really depends on the insurer, as they factor in poor credit to varying degrees.
Why does my insurance credit score affect my auto insurance rates?
For most of driving history, people never worried about their credit scores forcing them to pay more for insurance. But over the years, many insurance companies adopted the belief that people with low credit scores also have a greater chance of being in an accident. Why is that important? When an insurance company's customers have accidents, they usually file a claim to get money. The more accidents a company's customers have, the more money the insurer has to pay out. So, companies prefer customers who aren't likely to have accidents. And they reward these preferred customers with lower rates.
How can I improve my credit score?
Fortunately, you may be able to raise your credit score, which may lead to lower auto insurance rates. However, credit scores don't improve overnight. You'll have to develop a plan and stick to it before you see a change in your credit. Start by doing the following:
- Consider reducing your amount of debt by using your credit cards only for emergencies. And try to pay more than the minimum amount on your cards. Otherwise, you're mainly paying interest fees each month while the balance shrinks only by a tiny amount.
- Pay your bills on schedule if possible. It's not just enough to pay your bills each month. You damage your credit when you pay late. So, consider setting up an automatic payment system where money is taken from your bank account on a set date each month to pay your bills.
- Correct any mistakes made on your credit reports from Experian, Equifax, and TransUnion. There’s always the chance of errors on your credit reports from the three major credit bureaus. For example, they may continue to list you as having a loan when, in reality, you paid off that loan years ago. Mistakes like that can cost you several credit points—and that means they may affect your auto insurance rates. To ask for your credit report, you can go directly to the three credit bureaus’ websites or to a variety of online third-party sources. You’ll just need to provide some basic information—like your birthdate and Social Security number—to order your report.