How Your Credit Score Influences Your Auto Insurance

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When was the last time you evaluated your budget? A few months ago, I took a good, hard look at my finances, and I realized that I was spending a boatload on insurance premiums. I knew that I needed to cut down my spending, so I started talking with my insurance agent. The agent was incredibly kind and caring, and he walked me through a variety of hypothetical scenarios to help me to make things right. I was really impressed with how awesome the experience was, and I was able to save a lot of money on my premiums. This blog is all about reducing insurance costs.


How Your Credit Score Influences Your Auto Insurance

27 June 2023
 Categories: Insurance, Blog

Auto insurance companies use many factors to determine how much you pay in premiums. However, the factors go far beyond just your driving record. Insurers also look at your credit history to determine how big of a risk you are as a driver, even though it may seem like the two are completely unrelated to each other. Here is what you need to know about how your credit history is used by your auto insurance company. 

Know Your Credit Score

You first need to understand what your credit score is, since it is a number that is assigned based on your individual creditworthiness. The number is simply a way to immediately assess someone's risk when it comes to finances, with a high score representing a person that is a low risk. The number is determined based on payment history, length of credit history, debts, car types used, and even the companies that look into your credit by making an inquiry.

Know The Relationship With Risk

There have been studies done in the past that show a correlation between credit scores and the likelihood to make an insurance claim. As you may assume, a person with a high credit score is assumed to be less likely to make an insurance claim, and someone with a low credit score is more likely to make a claim. While it is not necessarily fair to those that have a low credit score, everything in the world of insurance is based on statistics compiled with real-world information. 

For example, an insurance provider may view someone with financial instability as someone that is not good with risk management. Therefore, they may also behave the same when driving a vehicle. 

Know The Impact On Premiums

Now that you know why insurance companies use credit scores to determine your risk, you're likely wondering how it impacts you as a driver. Individuals that are at a higher risk of making a claim will pay a higher premium as a result. This is the amount you pay at the start of the insurance term and guarantees your insurance coverage over that period of time. The insurer cannot drop you or make changes to the price of your policy while you hold it unless you violate a rule that would allow a policy to be terminated. 

Know The State Laws

However, there are state laws that have restrictions on using credit history to determine insurance premiums. This can require an insurer to notify you if your credit history was used or to place limits on how much it can impact your premiums. 

For more information on auto insurance, contact a professional near you.