Why Your Credit History Affects Your Car Insurance Premiums

Why Your Credit History Affects Your Car Insurance Premiums


Today, credit reporting bureaus are a source for determining many financial and legal matters. They are not only for getting a mortgage or personal loan or for financing a business project. The credit bureau has become a source of valuable information for banks and other lenders, employers, courts and insurance companies. So as you can see, keeping your credit score up as high as possible is important. It can help you in many aspects of your life even if you never acquire much debt.

Why Do They Care?

You might ask, “Why should a car insurance provider care about my credit score?” Simply put, insurance companies have found through much research that a person’s credit or debt and related spending behaviors is directly related to the number of claims he might file with a car insurance company. In many cases (although not always), the insured with a high credit rating that pays his bills faithfully and on time demonstrates responsible behavior that reduces his risk for accidents. On the other hand, a person with a low credit score or derogatory marks against his credit history such as bankruptcy, repossession or non-payment of debts is likely to have more claims.

Car insurance companies understand that each individual’s situation is different. It’s not cut and dry with credit score ratings. That’s why credit scores are just one of the algorithms included in a providers research. Another thing to consider is a consumer with a very good credit rating is likely to be a middle-aged or older driver. This also affects the insurance premium in a positive way if the driver has kept his driving record clean all those years.

Legality of the Matter

Car insurance providers do have a legal right to view your credit report under the Federal Fair Credit Reporting Act. In this act, scores and history must be made available to insurance companies, credit lenders, employers and a few other agencies. You should be at ease to know that when the insurance company views your credit report, it will not affect your score negatively.

The Insurance Credit Score

Some providers use an insurance credit score. They use a number of factors to create this score such as the type of credit you have with retail stores, finance companies, banks, credit cards, etc. Other factors are the number of credit inquiries showing on your history, open lines of credit, unused credit and the length of your history. With the insurance credit score, the provider can predict if you are a high-risk consumer and whether they would be willing to provide coverage for you.

As you shop for car insurance, be sure to find out if and how your credit rating will affect your premium. Insurance providers vary in the merit they put on credit scores, so if you have less than perfect credit, it pays to shop around. Use online comparison sites to find the best quotes from top rated providers. As you seek affordable car insurance, ask about discounts that can help lower your rates. Many providers allow discounts to be given in a number of situations.

Try to keep your credit score high and your records clean to enjoy lifetime benefits including lower car insurance!

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