How Credit Affects Your Insurance


What’s your lucky number? When it comes to insurance premiums, most people think that a fender bender is the only thing that can raise their auto insurance premium. But something else also affects insurance premiums, and that’s your credit score.

While you may take a look at someone and notice their eyes, hair or maybe their smile, insurance companies take a look at a person only see a walking bag or risks. Since it’s in their best interest to adequately try and price premiums for their services, they have to model the risk factors for their customers as accurately as possible.

While a lot of those risks can come from your choice of car or you’re the number of speeding tickets you get in a year, others result from the type of person they think you are. And just how do they judge that? Through your credit score of course. Insurers companies believe that your credit history can help them predict the likelihood of you filing a claim.

So what does it all mean? The better your credit score, the less you’ll pay on your premiums. Now your credit score isn’t the only thing they look at when giving you insurance rate quotes, but it does play a significant part. For example, three individuals, we’ll call them A, B and C all around the age of 25 – 35 walk into a company for an auto insurance claim. Mr. A has a clean driving record and a credit score of 750. Mr. B is an average driver with an average credit score, and as for Mr. C, well he has no credit score at all. Here’s what their rates would look like; Mr. A would pay 40 percent less than Mr. B and at least half of what Mr. C is paying simply because he has a good credit score.

Insurers use this predicting model in determining how best to price their premiums. In this case higher premiums for the person with bad credit and lower if you have an excellent credit and a profile that suggests you take lower risks.

With auto insurance, several studies have shown that motorists with bad credit can pay up to 91 percent more on insurance than drivers with good credit. How much you owe, how regularly you pay and whether or not you’ve had past problems are some of the things insurers to look out for. They don’t consider your job history, fortunately.

There is some good news, all things considered, and that’s the fact that most companies won’t deny you an insurance policy no matter how bad a credit score you may have, it will, unfortunately, affect your rates.

While your credit score tells a story of who you are and what you’ve been through, most insurers realize that you can’t always control what happens in your life. Because of this, your premium may qualify for a second look if you have a low credit score because you were caught in an extraordinary events (such as getting caught in an earthquake or a tsunami, having your identity stolen, death in the immediate family) that may have occurred.

Some states like Hawaii, California, and Massachusets have prohibited insurers from using credit score to determine auto insurance rates. But the bottom line for those not in those states is to keep a good credit score and potentially save themselves money on their car insurance.