Credit Scores and How They Can Affect Your Car Insurance Rates

As you probably know, our credit histories will affect a lot of things we want to buy in the future; loan for a house, car, boat, trying to rent an apartment, etc. What a lot of people don't know is that your credit score can affect your auto insurance premiums. For some companies, your credit score will just affect your car insurance rates; however, other companies may deny you.

Beneifts of Having a High Credit Score and Car Insurance

There are benefits to having your credit affect your car insurance. In fact, over 50% of all policy holders have lower premiums because of their credit score. Also, auto insurance companies can now better accurately price their insurance. (III)

Why do Car Insurance Companies Use Credit Scores?

Car insurance companies are using our credit scores to assess the risk of insuring us. More and more car insurance companies are correlating our credit scores with how well we drive. Basically, the higher your credit score, the better driver you are.

Banks and other financial institutions had long used credit information in determining risk on business such as home loans, and the correlation between those financial records and insurance risks became clear.

The average cost of a claim for a person with below average credit is $918, 53% higher then the average claim. Likewise, the cost of an average claim from a person with above average credit score is $558, 23% below the average claim (III).

How Car Insurance Companies use Your Credit History?

The laws and regulations that govern insurance are set at the state level, so where you live determines what information companies can gather and how they can use it, as well as what your rights are.

Many states require auto insurance companies to tell consumers what top factors have been used in determining rates, but your insurer may not even understand the exact significance of some of the numbers, since they often come from outside sources. If you're interested in finding out if credit was used to determine your rates, contact your insurance carrier.

The better your credit, the better your auto insurance rates will be. If you do have below average credit and feel you are paying too much, shopping around for auto insurance could save you money. Using InsWeb's online questionnaire, you can conveniently compare multiple insurance quotes and choose which one works best for you.