In most states, your credit score can affect car insurance rates—so if you have a low credit score, your options for cheap car insurance are limited.
One unexpected factor in determining your auto insurance premiums can be your
credit score. A credit score may seem like a bizarre thing to use to determine car insurance prices, but almost every auto insurance provider does this.
Read on to learn more about how credit score affects your
car insurance, with a little help from car insurance broker app
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Why do car insurance companies use credit score to calculate rates?
Studies have shown that drivers with low credit scores are more likely to be involved in
accidents, and that the accidents are, on average, more serious.
In other words, if you have a low credit score, it’s more likely that an insurance company will lose money by covering you. To help adjust for that risk, companies usually charge you a higher premium.
Many people believe that using credit score to influence premiums is unfair. When someone evaluates your credit score (such as a potential landlord or a car dealership), it’s to determine how capable you are of paying off what you are trying to purchase.
Since car insurance companies only provide you with their service when you pay for it, they don’t really need to worry about this. If you’re unable to make your car insurance payments, they’ll simply stop insuring you. That’s part of why it doesn't make sense that
carriers factor in your credit score when determining your car insurance rates.
How do car insurance companies calculate your credit score?
Car insurance companies don’t use standard and well-known credit scores. Instead, they take your FICO or Experian credit score, plug it into their own algorithm, and create their own credit score for you.
By doing this, car insurance companies are able to create a credit score that they believe more accurately reflects your potential risk as a driver.
How much does your credit score affect car insurance rates?
Every auto insurance provider has a different equation for determining their rates. Each company relies more heavily on certain factors and less heavily on others. As such, there’s no single way that your credit score is used to determine your auto insurance rates.
If you want to know how much value a car insurance company places on credit scores, you should call and ask them directly. Usually, insurance providers are transparent about what factors go into their quotes so they can help you get a feel for how you can improve your rates.
Do all car insurance companies check your credit score?
Nearly every car insurance company will check your credit score. However, if you live in one of three specific states, your credit score cannot be checked.
If you live in California, Hawaii, or Massachusetts, you don’t have to worry about your credit score when you’re purchasing automotive insurance. In these three states, it’s illegal for insurance companies to use your credit score to determine your rates. These states have outlawed the practice, as it affects low-income drivers the most.
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