How Can Your Credit Score Affect Your Car Insurance

The driving history is a prime determining factor when companies decide to give you the rates for your car insurance. Do you know what else is important? Credit score. Insurance companies want to see if you’re financially responsible enough to pay your premiums.

In this article, we are going to answer the most common questions about the effect of your credit score on tout premiums. What do you need to look out for? How can you improve the trust rating with your insurance provider?

How companies come up with rates

First, they factor in age and driving experience. Older, more experienced drivers are trusted more because they pose a lower risk to the company. Younger inexperienced drivers are considered to be at higher risk. Companies don’t want to lose profit for someone irresponsible.

They will also look into how the cars are used. They check how often you drive and the miles you travel. Of course, they will check your claim history too. They will look into the model of your vehicle and where you live.

Of course, your credit history will be checked. These factors not only determine the rates they will give. The companies will also use this information to suggest the right type of policy or coverage for you. For example, there are car insurance deals for specific models of cars.

The effects of credit on insurance cost

Some companies base their rates on the applicant’s credit score instead of the overall combination of several data. They say this helps them accurately predict insurance losses. Currently, the majority of providers take into account credit score in their rate calculation.

How they do it

There are several key factors used. To begin with, they look into late payments or delinquencies in a person’s payment history. They also look into how long the credit history is. Lastly, they find out the type of credit cards you own and what loans you have.

They strictly look into these factors and nothing else. Your gender, marital status, and income don’t factor in the assessment. This makes sure the rate assessment is objective.

The benefit

If your provider calculates your rate through the credit score method, you are guaranteed an objective assessment. This is assuming your credit history is clean. But even if you have a few late payments, you will still be given a fair deal.

Credit score and insurance score

Even if the credit score affects your premiums, it doesn’t mean it will change your insurance score. Those are two different scores. Insurance providers have a different way of looking at these scores. Insurance companies look at it and see if there will be a potential loss.

How you can improve credit score

For starters, paying off your credit card company in advance or on time helps. Making sure you are tracking your spending well. For more in-depth information, you can visit the Federal Trade Commission and do some reading.

These are the ways on how your insurance premiums are affected by your credit score. Next time you apply consider them. Stay insured.

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Bob Sopcak

View posts by Bob Sopcak
My name's Bob Sopcak. I'm a licensed insurance expert and I take great pride in helping people with their car insurance needs. I've been a liscensed agent for the last 7 years. I specialize in car insurance.

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