How Your Credit Score Impacts Your Car Insurance Rates

What if a few forgotten mistakes were costing you major money each year, and you did not even know it?
You already have a car insurance policy, and you have likely asked yourself why the monthly bill is as high as it is. While a number of factors can affect your premium, most people never suspect that their financial rating plays a major role in how much they have to pay.
Wondering how your credit score affects car insurance? What can you do to improve your standing, and what kinds of savings can you expect to experience? Keep reading to discover everything you need to know about the relationship between car insurance and your credit score.
The Intersection of Credit Scores and Auto Insurance
You probably already know about certain factors that affect your automobile coverage rates, including your driving record and the type of vehicle you own. There are also less obvious factors, including where you live and your marital status. However, very few drivers understand how their financial rating and auto coverage are related.
These two things intersect in some complex ways, but this guide will help make everything simpler. For example, by understanding the link between financial history and car coverage costs, you can take control of your rate and potentially spend less each month for the protection you need. Remember, improving your credit is just one of the ways drivers can get a lower car premium.
Exploring the Link Between Your Financial History and Car Coverage Costs
Why does your credit score impact your insurance rates? In short, carriers can be very selective about whom they offer coverage to, and they set rates according to how risky they think it will be to insure someone. Insurers like to point to studies showing bad scores are a regular predictor of someone being likelier to file a claim. Therefore, a bad enough standing means someone might not be able to get a policy, and any policy they do get will have higher rates in order to account for the higher claims risk.
Decoding Credit-Based Insurance Scores
It is one thing to know how financial ratings affect car insurance, but it is another thing to know the precise numbers involved. After all, your idea of a “good” range may differ dramatically from that of your carrier.
Fortunately, it is easy enough to get on the same page. And once you know what a good number looks like in the eyes of your own insurer, you can begin to take proactive measures in order to drive your monthly premium down.
What Constitutes a Good Credit Score for Cheaper Auto Insurance?
Carriers adjust car insurance based on financial ratings, though each one has a slightly different way of calculating whether your number is good or not. For the most part, you can use FICO, which measures “good” scores at 670-739, “very good” at 740-799, and “excellent” at 800-850.
Navigating Rate Changes: Credit Score Fluctuations and Your Insurance
The most unfortunate thing about the relationship between credit scores and auto policy premiums is that both are subject to fluctuation. There are obvious things that can drive down your standing, including missing payments and defaulting on accounts. But less obvious activities can also negatively affect it — for example, closing an account (especially an older one).
As the score goes lower, your rates will go higher. And it is important to take immediate steps to repair bad credit, or you could be stuck paying more (in some cases, way more) on your premium each month.
How a Low Credit Score Can Inflate Your Auto Insurance Rates
Does your credit score impact your insurance rates? In a word, yes: those with bad standings can generally expect to pay 88% more than those who have higher ones. Put another way, those with lower standings pay an average of $144 more per month for full coverage than those with higher ones.
Keep in mind that those are just the averages. It is entirely possible for a bad rating to lead to someone paying an extra $200 per month for their coverage needs. That adds up to an additional $2,400 per year, money that could certainly be better spent on almost anything else.
Improving Your Credit Score to Unlock Lower Insurance Premiums
Now that you know how your score affects car insurance, there is some good news: there are easy and immediate steps you can take to begin repairing it. Set your payments to automatic (so you never miss them), pay down any of your revolving account balances, keep your oldest accounts open, and avoid applying for new accounts whenever possible.
Additionally, you should consider signing up for a credit monitoring service. Not only is this the easiest way to find out your rating, but many services make it easy to start repairing it and even disputing false charges on your cards.
Credit Is Not Everything: Other Factors Shaping Your Insurance Rates
Credit rating is only one factor affecting how much you pay for your automobile premium each month. Other primary factors include your driving history, your claims history, where you live, and your vehicle model and age. Even factors like your age and whether you are married ultimately impact the cost of your premium. As you can see, these different factors mean that even excellent drivers may see car policy rates rise.
Why Do Insurers Consider More Than Just Your Score?
As usual, it all comes down to who is statistically more likely to get into an accident (which is why the very young and the very old pay more) and how costly it will be to repair or replace your vehicle (which is why what you drive is so important). The less risky you are in the eyes of the carrier, the cheaper your premium.
Get the Best Car Insurance Today!
Now you know how credit scores affect car insurance. Moreover, you know how to improve your standing and the different factors that affect your monthly premium. Most importantly, you know how all this information can help you save money each year.
But do you know which insurance company can offer you the most competitive rates regardless of credit score? At InsureOne, we are here to help you get the rates you deserve at the fairest possible prices. Once you are ready to stop paying more than you have to, come get a quote online. You can also pick up the phone and give us a call at 800-836-2240. Finally, always feel free to come find an InsureOne office near you.
FAQ: Addressing Common Queries About Credit and Auto Insurance Rates
Still have questions about credit scores and auto insurance rates? Below, you will find answers to the most frequently asked questions.
Will Getting an Insurance Quote Affect Your Credit?
Simply getting quotes for coverage will not affect your score.
Does Switching Car Insurance Providers Impact Your Credit Score?
In most cases, switching to a new carrier will not have a negative impact on your score. The main scenario where this could happen is if you switch while still owing money to the old carrier. That debt, like all debt, can potentially impact your score.
Are There States Where Credit Does Not Influence Auto Insurance Rates?
Your score cannot be used to calculate your automobile insurance premium costs in the following states: Massachusetts, Michigan, Hawaii, and California.
How Often Do Insurers Update the Credit Information They Use?
It is up to individual car insurance companies to determine when they will update the credit information they use to calculate premiums. Some will update the information once per year, and others may wait until the third year of your policy. Regardless, if you are already worried about your score having a negative impact on your premium, it is important to take measures now to avoid costly rate hikes in the future.
Will a Good Credit Score Guarantee Lower Auto Insurance Rates?
If you have historically had a bad score, then improving it will almost certainly drive your rates down with your current carrier. That is because all other factors affecting your premium are likely to be the same, and improving your standing makes you look less risky to insure. Once that happens, your carrier may lower your premium, effectively passing the savings on to you.
However, because multiple factors go into calculating your overall cost, simply having a good score when you apply for a new policy does not guarantee you will get the rate for which you are hoping. That is because, for example, someone with a good score but a bad driving record and a major history of claims will still be considered very risky to insure.
Is It Possible to Get Auto Insurance With a Poor Credit Score?
It is entirely possible to still get auto insurance with a poor score, but you are likely to pay more than you otherwise would. If your score is bad enough, you may have to shop around more because some carriers may refuse to sell you a policy.
What Should I Do If I Disagree With the Credit Score an Insurer Has for Me?
If possible, you need to find out which credit bureau the carrier uses and then dispute any mistakes on your accounts that may be dragging your score down. This requires you to identify specific mistakes first, though, a practice that will be easier if you sign up for a monitoring service.