In most states, your credit score affects car insurance rates. Higher scores usually mean lower premiums, while lower scores can lead to higher costs, even with a good driving record. A-MAX helps you find the best rates you qualify for, regardless of your current credit rating.
Does My Credit Impact My Car Insurance?
How Does My Credit Score Affect Insurance Rates?
Car insurance companies are always looking for ways to reduce risk by determining what types of drivers are more likely to put expensive claims through their policies. Drivers with limited driving experience, elderly drivers, and people with violations and accidents on their driving record are typically more likely to get into a serious car accident so car insurance companies adjust their rates for these high-risk drivers to collect more premiums.
Another type of driver that insurance companies have found is more likely to have a serious accident and costly claims is a driver with bad credit. When someone has a lot of debt or exhibits missed or late payments on their bills, their credit score reflects this and indicates a lack of responsibility. People with bad credit are more likely to file claims because they may not have the disposable income to cover smaller losses out-of-pocket. They also may be less responsible, which insurance providers believe leads to less safe driving habits and, therefore, the potential for more expensive claims. This is why drivers with bad credit are charged higher car insurance premiums than individuals with more favorable credit scores. In some cases, drivers with bad credit may even be offered limited options for their coverage because they are more at risk for causing serious injuries to other people in an accident.
What is a Credit-Based Insurance Score?
Most car insurance companies that use credit as a rating tool use a "credit-based insurance score," which differs from your normal credit score. When an insurance company runs your credit data, they will look for things like your payment history on your bills, accounts in collections, the balance on your credit cards, and the types of credit you use. In addition, they may factor in non-credit data, such as information gathered from public records. When an insurance company runs this type of score, they look at how responsible you are as an individual, how much debt you have, and if you seem to have trouble making your monthly payments on time. This is used to determine your risk level. Rather than pulling an actual credit score, insurance companies use the information they collect to place you into the appropriate risk category so that your auto insurance rates reflect your level of risk.
Which States Don't Allow Credit Score Checks?
Though most states allow using one's credit rating to determine eligibility for certain car insurance programs in addition to the cost of insurance premiums, the practice has been banned in California, Hawaii, Massachusetts, and Michigan. These states have determined that charging more insurance premiums for drivers with poor credit is discriminatory and compromises affordability and fairness for all drivers in their states.
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What is No-Credit-Check Auto Insurance?
Even in states that allow credit-based insurance scores to determine your car insurance rates, car insurance companies do not use your credit when determining your auto insurance rate. If you know that your credit may be an issue, it may be worth looking into which carriers in your state do not use credit as a rating factor so that you can pursue your coverage through one of them.
How To Improve Your Credit Score
If you are looking to improve your credit score, you can do a few different things that can have a big impact:
• Pay down your credit card debt
• Avoid missing payment deadlines
• Pay off accounts that may be in collections
• Reduce the number of credit accounts you have
How Bad Credit Drivers Can Save Money on Car Insurance
There are ways to save money on car insurance, even if a bad credit report impacts your premiums. Most insurance companies offer discounts for paying the premium in full or putting your policy on an automatic payment plan. You may have the option to bundle your car insurance with your home or renter's insurance, which can provide a nice credit to both policies. You can sign up for a program that monitors your driving habits through an app on your smartphone or a device you install in your vehicle. You can raise your comprehensive and collision deductibles for more savings. Additionally, you may be able to reduce your liability and property damage limits for additional savings, but this is not recommended. You must buy as much coverage for these things as you can afford to have enough coverage to respond in the event of a claim.
How Can I Check My Credit History?
You can check your credit history and get copies of your credit reports from the three major credit bureaus (TransUnion, Equifax, and Experian) online. Remember that the credit scores you see from these credit bureaus may differ from your credit-based insurance score because your credit-based insurance score is based on factors different from your overall credit report. Auto insurance companies use the credit-based insurance score as a factor to determine your car insurance premiums.
Impact of Credit Scores on Insurance Rates FAQs
Q: Why do car insurance companies use my credit score when rating my policy?
A: Drivers with a bad credit report have been proven to be less responsible drivers and less likely to pay their premiums on time so car insurance companies use credit as one of the tools they use to determine a fair car insurance premium based on your level of risk.
Q: Can I get cheaper insurance if I improve my credit score?
A: Yes, if you take steps to improve your credit score, you can ask your car insurance company to re-rate your auto insurance policy based on your new credit score, or you can request a new quote from another carrier to see if you can find a cheaper policy.
Q: How can I save money on my car insurance if I have bad credit?
A: If you have bad credit, you can talk to your insurance agent or company to ensure you maximize the discounts on your auto policy. You can elect to pay your premium in full, install your insurer's app on your smartphone to monitor your driving habits, or raise your deductibles, among other things.
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