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Your credit score affects all major financial decisions in your life including mortgages, applying for a credit card, and leasing a car. Your credit score also affects your car insurance policy premium in much the same way your driving record does.
In most states, your credit score significantly affects how much you pay for auto insurance. We have researched extensively to help you understand how much your credit score affects your car insurance policy premium and how you can get the lowest rates.
Do Insurers Check Your Credit Score?
When you apply for a policy, all major insurance companies check your credit score. This is because credit ratings directly affect how many claims a driver is likely to file. Checking your credit score ensures that insurance companies can match higher rates to higher-risk drivers.
While shopping for a car insurance quote does not affect your credit score, if the insurer uses a ‘hard pull’ it can impact your credit score.
A hard pull can lower your credit score slightly for a short time. Applying to many lenders over a short period can also lower your credit score.
How Does Credit Affect Your Car Insurance Policy Premium?
While your credit score does not affect how you drive, it is a major consideration for auto insurance companies. Your credit score determines whether you are likely to file a claim.
Insurance companies consider drivers with poor credit higher risk because they are more likely to file claims. Higher risk is more expensive to insure which translates to higher car insurance rates if you have bad credit.
The Consumer Federation of America and other consumer advocacy groups assert that using credit to determine insurance rates is discriminatory. Some states such as Hawaii, Massachusetts, Michigan, and California have even banned using credit to determine insurance premiums.
However, studies show a correlation between credit score and the number and cost of insurance claims. Drivers with bad credit are considered a higher risk by insurance companies which leads to higher premiums.
How Do Insurers Evaluate Credit Scores?
When you apply for a policy, insurers may evaluate other factors alongside your credit score to determine your risk profile. Some of these factors include your driving history and personal details.
Before they offer you a policy, insurance companies use these factors as well as your credit score to determine how likely you are to make the payments on time and file a claim.
Insurance companies rely on complex algorithms that factor in your credit score to calculate your premiums. However, poor credit directly correlates to higher premiums.
Can Your Credit Score Lower Your Car Insurance Policy Premium?
It goes without saying that a higher credit score will earn you a higher insurance score. A driver with good credit and driving history is more likely to get lower premiums.
Credit scores range from 300 to 900 with anything above 750 considered a good credit score. The higher your score, the better your chances of getting a lower car insurance premium. To increase your credit score, pay all your bills, loans, and debts on time.
Other ways to improve your credit score include:
● Reducing the number of loans you have
● Paying your credit cards and loan EMIs on time
● Using credit cards with manageable limits
● Avoiding multiple loans and credit card applications within a short period of time
● Do not open multiple accounts in short periods of time
Insurance companies use your financial history to determine your credit-based insurance score which is used to calculate your premiums.
How Long Can Your Credit Score Affect Your Car Insurance Rates?
Unlike traffic tickets that may not affect your driving record after 3 to 5 years, a bad credit score continues to impact your credit-based insurance score. The longer you have poor credit the longer your car insurance rates remain affected.
The only way to lower your car insurance rates is to improve your credit score. Once you have significantly bumped up your credit score, visit several insurance companies and compare quotes.
You can also ask your current insurer to review your credit. Some companies are happy to review your car insurance premium upon renewal if you have improved your credit score.
We recommend shopping around to find out how much your positive change can save you in premiums. Some companies offer better rates and accommodate your needs as a driver.
How Does Driving History Vs Poor Credit Affect Your Car Insurance Rates?
According to Forbes Advisor, speeding tickets raise your car insurance rates by 21%. A DUI is considered a serious offense and increases your auto insurance rates by 74% compared to 76% for poor credit.
From these figures, it is easy to see just how much bad credit affects your auto insurance rates. The best way to get better rates is to improve your credit score while keeping a clean driving record.
Can You Still Get Lower Car Insurance Premium with Poor Credit?
While poor credit significantly affects your risk profile with car insurance companies, you can still get lower premiums. Consider:
● Asking for discounts: Ask your agent or company whether you are eligible for car insurance discounts. Some insurers reward you with discounts when you pay in full, go paperless, or even combine insurance policies.
● Keep a clean driving record: Your driving history significantly affects your car insurance rates. Consider shopping for a usage-based insurance policy that monitors and scores your driving habits. Better scores translate to lower rates.
● Review your current insurance policy: If you have had the same insurer for some time, consider reviewing your policy to suit your needs. If you drive an older car, consider taking off collision coverage or comprehensive coverage to save on your premiums.
Learn More About How Your Credit Score Affects Your Car Insurance Policy Premium
You can access your credit score at no charge every year from any of the credit bureaus. Carefully check your report for any inaccuracies and report any mistakes to the relevant credit bureau to ensure your credit score is not affected.
You can also reach out to an expert to learn how you can get lower car insurance rates even with poor credit and how to improve your credit score.
