Can Your Credit Score Affect Your Car Insurance Premiums?

It’s common for lenders to ask for a hard credit check when you apply for a lending product, but does the same apply to insurance? Even though you aren’t borrowing money, insurers will still use your credit score to determine your premiums and predict insurance losses. Here’s why.

How Does Your Credit Score Affect Your Insurance Premiums?

Can Your Credit Score Affect Your Car Insurance Premiums?

Unless you live in Hawaii, California, or Massachusetts, US auto insurance companies will use your credit score to determine risk when providing insurance quotes. However, most of the information in your credit report is irrelevant and won’t affect your premiums, like income history.

Car insurance companies will primarily look at your payment history and total debt to assess risk levels. If you have a lot of debt or a spotty record, the insurer assumes you’re more likely to file an insurance claim and miss payments. Unfortunately, high-risk drivers pay higher premiums.

What Is Considered A “Good” Credit Score By Car Insurers?

Can Your Credit Score Affect Your Car Insurance Premiums?

Car insurers will offer you the best insurance rates at the “Exceptional” credit score tier, which ranges from 800-850. The “Very Good” and “Good” tiers, ranging from 740-799 to 670-739 respectively, still offer great rates. But, you could save hundreds per year with an 800+ score.

After 670, customers may spend 20% or more per year on insurance than a person with a good credit score. At 300-579 (“Poor” range), policyholders may pay 50% or more on insurance.

If you have a bad credit score, that doesn’t mean you can’t save money where it counts. It’s always important to shop for insurance online via comparison sites, like Cheap Insurance, to ensure you’re getting the best rate. Auto insurers often share the best deals for new customers.

Are There Other Factors That Affect Your Insurance Premiums?

Can Your Credit Score Affect Your Car Insurance Premiums?

If you have a great credit score but your car insurance premiums are high, there could be other reasons why you’re spending more than you have to. Here’s how most insurers calculate costs:

  • Age or Driving Experience: Young drivers and seniors pay more for insurance.
  • Vehicle Use: Company or construction vehicles could be pricy to insure. 
  • Vehicle Model: Classic cars or luxury cars (Rolls-Royce) are expensive to insure.
  • Driving and Claim History: A clean driving record benefits your wallet.
  • Geographic Location: City drivers are at higher risk of accidents, and thus pay more.

As stated, companies will offer different insurance rates for the same type of coverage. That’s because some companies will weigh certain factors more than others. For example, Insurer A will always increase your premiums at 60, while Insurer B will solely look at your driving record.

How To Increase Your Credit Score And Lower Your Premiums

Can Your Credit Score Affect Your Car Insurance Premiums?

Since car insurance is mandatory, a low credit score won’t prevent you from obtaining it. At the same time, you can’t opt out of high rates unless you stop driving or improve your credit score.

Develop A Long Payment History

Young drivers often have high insurance premiums because they’re more dangerous on the road and have a limited credit history. Young people can become signatories on their parent’s credit accounts (if they have good credit) to start populating their clean payment records.

Settle Up Any Debts Right Away

If you have debts or you frequently make late payments, start developing good spending habits. Create a budget that helps you pay off your revolving debt and automate your bill payments to improve your track record. Consolidate large debt into one low-interest loan if necessary.

Avoid Filing Unnecessary Claims

It makes sense to file every fender bender or scrape, but it isn’t always worth it. If the repairs cost less than the potential premium increase, you’ll be paying more out-of-pocket in the long run. Remember that this is mostly true for collision claims, not for comprehensive claims.

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