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UPDATED: Oct 28, 2016
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Continue reading this article to learn about credit scores and car insurance rates and then be sure to compare your own personalized auto insurance rates no matter what your credit score is.
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Using Credit Scores
It is easy to see why they are important things to consider when determining how much you should have to pay for auto insurance.
However, other things that are taken into consideration in rate setting are much less obvious, such as your personal credit score.
The use of credit scores in setting insurance rates is somewhat controversial despite its widespread use for many years now.
However, due to consumers’ concerns most states now have guidelines in place for how insurers can use credit information in rate setting. This provides reassurance for consumers whose credit information is not being used in a standard way throughout the industry.
The Link Between Credit Scores and Insurance Claims
Studies have shown that there is a distinct correlation between low credit scores and a high incidence of insurance claims. This correlation is the reasoning behind using credit scores as a car insurance rating criteria.
Although you may wonder which auto insurance companies do not use credit scores the fact of the matter is that most underwriters look at a driver’s actual credit score as well as other factors such as:
- Where you live
- What you drive
- Your driving record
- How your vehicle is used
- Type of coverage you want
While any of the factors considered contribute to your rate being higher or lower, the inclusion of the credit score has created the most rating tiers.
As anyone who is familiar with credit scores knows, there is a huge range of possible scores a consumer can have, therefore underwriters have a wide variety of possibilities to consider.
They do not simply look at good credit versus bad credit.
They often actually look at the details of your credit history, as provided by one of the credit reporting bureaus.
Some of the things found on your credit report that can affect your insurance include:
- Loan balance to available credit ratio
- How many loans and credit cards you have
- The age of your loans
- Timeliness of payments
Two companies have designed models to help insurers use credit information for insurance scoring.
ChoicePoint and FICO have made it easier for many insurance companies to use your personal credit score, while many other companies have their own system in place. However, before they can access your information, they must get your permission.
Is it legal for car insurance companies to check my credit score?
The ability for a car insurance company to check your credit score is determined in your own state by your state’s insurance commissioner.
In most states, it is perfectly legal for an insurance company to check your credit.
In the states where it isn’t legal, such as California, insurance companies don’t run your credit to determine your rates.
If you aren’t sure whether this is a legal practice in your state, you can do a search for your state’s department of insurance on the National Association of Insurance Commissioners website, under the States & Jurisdiction Map.
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How Insurers Weigh Rating Factors
Each insurance company weighs rating factors differently.
While your driving record is the factor that is considered first, the other factors each have their own weight as assigned by underwriters of individual insurance companies. This contributes to the variation in insurance price quotes from one company to another.
The use of credit scores for insurance rating is newer than other factors and therefore is not treated uniformly by all insurance companies.
Some give it very little significance while others give it much significance. Thus you may find big differences in your premiums when shopping around, especially if your credit score is extremely bad or extremely good.
Will my credit score affect my fleet insurance rates if I have a business?
Your personal credit score won’t affect your overall rates for your fleet insurance. However, who you choose to drive your vehicles will have an impact on your rates.
If you choose drivers with overall bad credit scores, this can cause your rates to increase.
In order to keep those rates down, you should choose a car insurance company that doesn’t request the social security numbers for your drivers.
Also, choose a company that provides discounts if you send your drivers to driving classes to help them be better drivers!
Get Car Insurance Rates Now!
If you are looking to buy car insurance, it pays to shop around. Each insurance company not only treats rating factors differently, they also offer different discounts which contribute to varying prices.
You could be paying a lot more than you need to for car insurance coverage if you do not get a variety of quotes to compare before you take out your policy.
The most efficient way to get car insurance quotes from a variety of companies is to use an online quote tool, such as the FREE one below.
After your zip code, you will be asked to provide information about yourself, your driving record, your vehicle and the kind of coverage you want. The information will then be submitted to a variety of car insurance providers serving the area in which you live.
In no time, you will have the quotes you need to compare and contrast for the best price possible for the best coverage possible.
Once you start comparing quotes, you will see for yourself how differently companies treat the exact same information.
Do your homework and compare quotes carefully to make sure you get the best coverage possible to meet your needs. Get an online rate quote to get started shopping for car insurance now! Enter your ZIP code below now!