Auto Insurance and Credit Score

Did you know that insurance companies calculate auto insurance and credit score ratings together to determine what your premiums will be? Most car insurers now factor in your credit score not only to to determine how much of a risk you are but also what programs you are eligible for.
Car insurance companies have to carefully calculate risk factors to keep their policy rates competitive and still make a good profit. So they use risk modeling to help them come up with an insurance risk score and your credit report is part of that.
How It Works
Each insurance company has their own way of insurance scoring and this involves more than just your credit report. But you can almost be certain that a person with a lower credit score will pay more for car insurance than someone with a high score.
Car insurance companies refer to many studies that have shown that a person with a bad credit history has a more risky behavior which in turn involves more claims being filed. The studies also show a person with a good credit score is more trustworthy and much less likely to file a claim.
Whether this is actually true or not, an insurance company insures against risk so the more risky you are the higher premium you will pay. The bottom line is if your credit score is below 650, you will most likely pay higher rates in most states. That’s why it pays to shop around for rates because each company uses different insurance score models in relation to credit scores to decide on premiums.
What You Can Do About It
Over seventy percent of all credit reports have errors and those errors could be raising you rates. So get a copy of your credit report and score. Remember, if you request a copy of your credit report, it’s considered a soft inquiry which means it doesn’t affect your score.
Once you get your report, look for old or outdated information as well as any wrong information. If you find any mistakes, contact the credit bureau reporting the error and have a copy of the document that proves the error.
The same with any outdated items that you have taken care of or paid off that is still showing up. Have the proof ready and send them a copy to get it removed from your credit report. Make sure it’s a copy because they won’t return any documents to you. Once those items are removed, you can contact your insurance company and send them a copy of your credit report so you can start saving money.
This won’t happen over night but it will eventually help you to pay less for your auto insurance especially if your credit score was lower because of errors. Raising your credit score also has other benefits like lower interest rates on anything you buy on credit.
What you pay for auto insurance and credit score ratings may have nothing to do with how good a driver you are, but the reality is that your credit score will most likely have an impact on what you will pay for your auto insurance premiums.