How Does your Credit Score Rating Affect Insurance Rates

How Does your Credit Score Rating Affect Insurance Rates image

Many car insurance companies now use your credit score to determine what you pay--because they say studies show that customers with poor credit histories are more likely to be in accidents and file claims.

More and more people are becoming aware that their credit score can affect their insurance rate. However, most people aren’t able to make the connection why it plays a role. Insurance companies state that those with a bad credit history present more of a risk than people with an excellent record.

Bad credit scores have no influence on how you drive. However, studies conducted by the insurance industry have concluded that people with worse credit scores are more likely to file claims. Insurance companies base quotes on the likelihood of people filing claim in the future.

It’s important to note that your insurance company won’t actually look at your credit history. Instead, they take into account your FICO score. Alternatively, they will use your FICO score as a basis for forming their own insurance score.

You should also be aware that the practice of basing insurance premiums on consumer’s credit history can actually benefit some. In particular, it will benefit people who have a bad driving record but excellent credit history. In the past, you would be forced to pay higher premiums if your driving record was tarnished. Nowadays, you may be able to get decent rates if you can show that you pay your bills on time.

Insurance companies are more concerned about people’s tendency to file claims rather than damage their cars. If you have good credit and damage your car, you’ll be more likely to pay for it yourself if the damage is minor instead of filing a claim.

Some states don’t allow insurance companies to factor credit history into their insurance premiums. Therefore, you may not have to worry about this depending on the particular state that you live in. Just be aware that more and more companies are starting to factor credit history into the equation nowadays.

Obtaining your own credit score is very simple these days. All you have to do is go online and buy your report. You can even get a free copy once a year according to the law. Since companies don’t actually look at your credit report, you may be tempted to try to find out what your insurance score is.

Unfortunately, consumers are unable to find out this information. The law doesn’t require companies to divulge insurance scores to their customers.

Obtaining one of these scores won’t be of much benefit anyway since every company uses various criteria when coming up with your insurance score.

The amount of weight that your credit score plays in determining your insurance rate depends on the location in which you live. As mentioned, not all companies currently take part in the practice. Therefore, if your credit history isn’t all that great, you may want to search for a company that doesn’t take it into account.


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  1. How Your Credit Score Can Affect Your Insurance Rate
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