Home > Credit Score > How Your Credit Affects Your Car Insurance—and What You Can Do about It

Comments 0 Comments

Insurance is not a one-size-fits-all product. If you’ve ever talked to an insurance agent or requested a quote online, you know you have to answer a bunch of questions before you receive your quote. This is because insurance is all about risk, and insurance companies use your answers to determine how likely you are to file a claim (and thus cost them money).

Does Credit Impact Your Car Insurance?

Insurance companies use countless factors to determine your risk and set your rates. Many of these are obvious, such as where you live, your driving record, and what kind of car you drive. But there are also a few factors that are less intuitive, like your credit score.

Credit is considered a rating factor for nearly all US drivers. Insurance underwriting (that is, how insurance companies assess and price your individual risk) is all about statistics, and insurance companies have found that people with lower credit scores statistically file more claims than those with higher scores.

In fact, a Federal Trade Commission study found that drivers with low credit scores are more likely to file a claim than drivers with higher credit scores. It also found that claims filed by drivers with low credit scores cost nearly twice the dollar amount as those filed by higher-credit drivers.

How Much Your Credit Score Affects Your Rates

Insurance companies in California, Massachusetts, and Hawaii are not legally allowed to use credit scores as rating factors per state regulations. In the rest of the country, however, credit can have a very real impact on your auto insurance rates.

A report from The Zebra explored how your credit rating affects what you pay for car insurance:

  • Drivers with poor credit (scores of 524 or below) pay more than twice as much for car insurance as those with excellent credit scores (of 823 or above).
  • Drivers can increase their credit scores by one tier (e.g. from poor to fair) to save an average of 17% on their annual auto insurance premiums.
  • Improving your credit score from poor to excellent would yield 53% savings (an average of $1,281 per year).

Is your low credit score costing you on car insurance? There are behaviors you can change to improve your rates in the future. Here are a few steps to help get you back on track.

1. Know Your Credit Health

The first step to healthier credit is understanding what your credit score currently is. Experts recommend checking your credit report once every four to six months. Regularly review what your credit score is and why. (You can check your credit report for free at Credit.com.) Once you know where you are, you can make goals to improve your overall credit health.

2. Practice Financially Smart Behavior

Now that you understand your overall credit health, you can take specific steps to improve it. Keep in mind that no matter what your credit score is, you need to practice financially smart behavior. This means developing a savings plan, managing your debt, and monitoring your credit. Review Credit.com’s Personal Finance Learning Center for more tips on developing and maintaining financially smart behavior. 

3. Check Your Insurance Rates

Many factors can impact your insurance rate, and these factors can change relatively often—so check your rates regularly. Coverage lapses, violations, claims on your driving record, and even your age can have a big impact on your rates. Compare auto insurance rates at least every six months to make sure you have the right coverage and you’re paying the best rate for it.

Keep an eye on your credit report, your financial habits, and your insurance rates for the best deals.

Image: monkeybusinessimages 

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team