Your Credit Score and Your Car Insurance?

Car Insurance Companies

Do you know what determines your car insurance rate? Sure the age of your vehicle and your own driving record have something to do with it, but did you know that your credit score could affect your insurance rate too? More auto insurers are using credit scores to determine risk.

A recent study showed approximately 90 percent of auto insurers use credit data to determine the likelihood of a claim. And some of those even use data to determine premiums. Even if credit scores were not a factor in determining the original policy decision and rate, some companies use these scores to adjust the rates of current customers.

These insurance companies typically do not use a FICO credit score. Instead they will ask for permission to pull a credit report and then use the credit report to determine an insurance risk score. The insurance risk score is typically calculated in the same way as a credit score with age, income, gender, race, religion, marital status and geographical location playing no factor in the determination of the score.

The assumption is made that those who have positive credit history and high credit scores have been responsible in the paying off debts. These individuals appear to take financial commitments seriously and therefore are considered responsible drivers. The logic follows that if the person is responsible with money she is also a responsible driver, and therefore, less likely to be in an accident. Another assumption is that those who have low credit scores may be under financial stress and may be more likely to exhibit risky behavior.

While some insurance companies use data from studies that show a correlation between a person’s credit history and the likelihood that a person will file a claim, others argue that a person’s credit history has nothing to do with their capabilities as a driver. Whatever the case, insurance companies are still using credit to determine rates.

The insurance risk score is determined based on many of the same factors as a credit score. The most important factor is on-time payments, but the insurance risk score considers other factors as well. The amount of debt a person owes, the length of time a person has developed their credit history, the amount of new accounts opened, and the amount of money still applied to a card or loan.

In the end, if you want to get the best auto insurance rates, you want to have one of the best credit scores you can get. If you want to get a better credit score, one of the best ways to do it is by developing your credit. When you come to Scott McCorkle’s Liberty Buick GMC looking for your next vehicle, try taking out an auto loan to develop your credit history for on-time payments. Then you can get the best auto insurance rates to go along with the best loan rates for your new vehicle!