How Credit Scores Affect Car Insurance Rates

Published on Sep 17, 2014 07:03 am

In most states, car insurers set rates based on how likely they think they are to have to pay a claim. When they look at a customer, they see a collection of risks. While many of those risks come from the person’s car choice or from their driving history, others come from who they are as a person. Some insurers feel that a customer’s credit history can be an indicator of their likelihood of filing a claim.

Credit and Insurance
Insurance companies tend to look at common factors like how much you owe, how reliably you pay, and if you’ve had any problems in the past. This means that you can do a credit report check and find out what your insurer is seeing.

Credit Scoring’s Impact
A survey conducted by an online rate-quoting website and covered in The New York Times indicated how much of an impact credit scores have on insurance rate quotes. For example, a 25 to 34-year-old driver with a clean driving record and a credit score over 750 would pay 40 percent less than the average driver of that age with an average credit score, and almost half what a driver with no credit file would pay.

Other Insurance Factors
Your credit score isn’t the only factor that influences your auto insurance premium. In addition to your car, driving record, and financial habits, insurers look at who you are from a statistical perspective. Younger drivers usually pay more, which means that everyone has a built-in opportunity to “earn” insurance discounts by simply having birthdays. Insurers also love responsible people, so being a student or, if you’re male, getting married, can also lower your insurance. Taking a safety course might lower your premiums, too.

Mitigating Credit Score Issues
To an insurer, your credit score is an indicator of who you are and how you might act. Some of them realize that you can’t always control what happens to you. If your credit score is low because of extraordinary things that happened to you, you might qualify to have your premium looked at again. Extraordinary events can be things like being caught in a natural disaster, being laid off, a death in the immediate family, or having your identity stolen. In addition, you can potentially save money on your auto insurance by taking good care of your credit.

In general, behaviors like avoiding high utilization, paying your bills on time, or not applying for too much credit can impact your credit score, as well as your auto insurance premium.

About the Author
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Lander holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc., an Experian company.   © 2014, Inc.  All rights reserved.

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