Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 15, 2020

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It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We partner with top insurance providers. This doesn’t influence our content. Our opinions are our own.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

Here's what you need to know...

  • Insurance companies do not directly check your credit score, but most companies use a credit-based insurance score to determine car insurance rates.
  • Your credit score could make a difference in your auto insurance premiums
  • It’s in your best interest to keep tabs on your credit score
  • There are many factors that affect your insurance premiums to a greater degree than your credit score does

Just as you think you understand all the ramifications of automobile insurance rating and what increases your premiums, insurance companies have thrown in a new assessment tool. Now they apply certain aspects of your credit score to rate car insurance.

Most of us are aware that the number of times our credit report is checked by institutions seeing if we are credit-worthy affects our credit score.

For example, if you apply for revolving credit through Sears, J.C.Penney, and Visa, an analyst may consider that you are applying for more credit than you can possibly handle and flag your account.

The number of times you apply for credit is listed on your credit report, as are the institutions that request the information.

So, who wants to add an insurance company or several to this list of entities requesting your credit report? The three major credit-reporting firms in the United States are:

All three companies indicate that insurance company queries will show up on your personal credit report, unlike the reports furnished to potential lenders or creditors.

This is important because some credit scores are based on the number of times the credit report has been accessed. Be aware that you may access your personal credit report from each of the three major reporting firms in the U.S. at no charge.

Start comparing car insurance rates now by using our FREE tool above!

How does a credit score affect insurance rating?

Insurers use credit-based rating to both select customers and to determine if the customer qualifies for a credit-based discount or surcharge. Some companies marketing themselves as no credit check car insurance companies but be careful because you will often pay higher rates.

States usually will not allow credit-based underwriting to be the sole reason for increasing rates or declining, canceling, or not renewing an insurance policy. Consult your state’s Department of Insurance if you have doubts about an insurance company’s action toward your policy.

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Factors that Affect Automobile Insurance Rates

A number of factors are taken into consideration when coming up with insurance rates. Consider all these factors:

  • Sex and age of drivers – Men have had more accidents statistically than women, and your age helps determine the possibility of accidents.
  • Make and model of cars driven – Luxury cars and sports cars have higher rates.
  • Area in which you live – Urban areas have higher rates than rural ones.
  • Marital status – Married people have fewer claims.
  • Annual mileage driven for each vehicle – More miles driven can lead to more accidents.
  • Driver’s record – You need to furnish a complete driver’s license – the insurance company will examine the Department of Motor Vehicle’s database to determine how many tickets and accidents you have had.
  • Education level and occupation – these do not carry as much weight as others, but can make a difference in underwriting.

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Coverage Limits – The Amount of Insurance Purchased

Before asking for estimates or quotations on your car insurance, you need to determine the required coverage in your particular state. To find this, go to your state’s insurance website and the minimal amounts required in your state should be given.

You should compare rates because, often, purchasing insurance that gives the best protection is not that much more expensive than your state’s baseline requirements.

Suggested Coverage Limits

Liability coverage  protects if you are at fault in an accident because it will help pay your legal liability for injury to others and damage to their property. Here is a suggestion for liability coverage:

  • $100,000 per person and $300,000 per accident bodily injury liability
  • $50,000 property damage liability
  • In states that have no-fault laws, purchase the amount recommended by the state

Other coverage to protect the members of your family in other circumstances:

  • $10,000 medical payments coverage to help defray the costs of emergency assistance if you are in an accident
  • $100,0000 per person/$300,000 per accident for your family if involved with an underinsured or uninsured motorist. This has a minimal cost and will help you protect yourself from the estimated 13% of drivers who do not purchase insurance.

Property damage to cover your own vehicle:

  • Determine the deductible you can pay in the event of an accident. Most individuals choose $250, $500, or $1,000 depending on what they can afford.
  • Comprehensive coverage – This pays for hail, glass, windstorm, flood, animal damage, vandalism, and theft.
  • Collision coverage – This pays to repair your vehicle in the event of a collision with another auto, a fence, or other immovable objects.

Free Car Insurance Comparison

Enter your ZIP code below to view companies that have cheap car insurance rates.

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Be a Wise Consumer

As you purchase auto insurance shop around and get quotations from at least three different insurance companies to make sure you’re getting the best deal. In that process, examine the following:

  • Are they licensed to sell insurance in your state? Consult your state’s insurance department to be sure.
  • How sound is the insurance company for financing? Try looking at their ratings on A.M. Best to examine the company’s solvency.
  • See what their ratio of complaints to claims record has been by accessing the National Association of Insurance Commissioner’s website
  • What do your neighbors and friends say about them?

Be sure to examine your credit scores with each of the three main firms at least once a year. This will help you know where you stand and protect you against fraud.  Start comparing car insurance rates now by using our FREE tool below!

References:

  1. http://www.experian.com/credit-advice/topic-inquiries.html
  2. http://www.equifax.com
  3. http://www.experian.com
  4. http://www.transunion.com
  5. http://www.naic.org/cipr_topics/topic_credit_based_insurance_score.htm
  6. http://www.naic.org/state_web_map.htm
  7. http://www.iihs.org/iihs/topics/t/general-statistics/fatalityfacts/gender
  8. http://www-nrd.nhtsa.dot.gov/Pubs/810853.pdf
  9. http://www.cbsnews.com/news/car-insurance-are-you-in-a-high-cost-zip-code/
  10. http://www.360financialliteracy.org/Topics/Insurance/Cars-and-Auto-Insurance/State-by-State-Minimum-Coverage-Requirements
  11. http://www.iii.org/fact-statistic/uninsured-motorists
  12. http://www.ambest.com
  13. http://www.naic.org/cis