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Credit Scores – Not Just a Number When It Comes to Car Insurance

Does My Credit Score Affect My Car Insurance Rate?

It depends. Some states are getting away from allowing insurance companies to look at credit scores when setting car insurance rates. But many other states still have no laws on the books to stop this practice. In many cases, when it comes to auto insurance…your credit score isn’t just another number. It can actually dictate how much you’ll pay for coverage on your vehicle. If you don’t know your credit score…whether it’s 500, 650, or 800…now might be a good time to find out. It could explain the sudden rise in your auto insurance rates despite a clean driving record.

Why Do Insurance Companies Base Rates on Credit Scores?

Many insurers regard your credit score as a reflection of your personal responsibility and overall commitment to paying your bills. And, if you’re habitually late or miss paying them, no matter the reason, your credit score will obviously be lower than someone who shows dedication in paying their obligations on time. To compound the issue, if you have a history of tardiness or defaulting on your credit card payments, you’ll be statistically judged as a greater risk behind the wheel…whether that’s true or not.

According to a paper published in 2020 by the National Association of Insurance Commissioners’ Journal of Insurance Regulation, insured drivers with the lowest credit scores had the greatest amount of losses. And it’s not just credit scores, but lower educational levels, occupations and more that are used as determinants for insurance premiums.

Some states have outlawed insurance companies using credit scores to set rates, including California, Hawaii, Maryland, Massachusetts, Michigan, Oregon and Utah. Other states are making it harder.

It’s Not My Fault My Credit Score Went Down

During tough economic times, almost anyone can face hardships that can change good credit to bad rather quickly. The loss of a job, a serious medical issue, a death or divorce can wipe out your bank accounts and leave your credit in a tail spin. Unfortunately, once your credit is shot, it can affect many things, including the interest rate you’ll pay should you want to buy a car, not to mention the insurance rate you’ll pay to insure it.

While you can reduce certain expenses by cutting back on energy usage, entertainment, and dining…you can’t cut back on car insurance. It’s a requirement if you own a car and plan on driving it. And, if you’re trying to get quotes for cheap insurance or simply reduce the cost of your existing premium, your credit score can affect the outcome.

Man checks his credit score

Can I Still Find Cheap Car Insurance?

Yes, you can get cheap auto insurance. It just means you have to shop around and do everything you can to improve and manage your credit score. In case you’d like to know how to do that…below are a few tips to help raise your credit score and make your insurance shopping easier.

  1. First find out your credit scores. Check all three credit reports (Experian, TransUnion, and Equifax) for inaccurate information. The credit agencies allow you to contest any incorrect or erroneous entries in your credit files.
  2. If you have discrepancies, fix them immediately. On the other hand, if your credit score happens to be what it is due to a string of late or missed payments, you can improve your credit score by starting to show a pattern of paying on time. If you can negotiate outstanding balances with debtors, do so. Reduce the burden for quicker payoff. Even if you have judgments in your credit file, by negotiating a settlement, you can still impact your credit rating in a positive way.
  3. Going forward, pay close attention to your finances and learn how to budget. If you have an emergency, such as an expensive medical issue, communicate quickly with your creditors and try to buy some time. Reaching out and communicating goes a long way with most creditors.
  4. If you’re currently insured and have a personal relationship with your agent, talk to him and explain your situation, especially if you’re experiencing financial difficulties as a result of losing your job or a divorce. Keep in mind that many other factors can go into assessing your auto insurance rates, your credit score being one of them.

Ways to Lower Your Car Insurance

Credit scores are one way insurance carriers set rates. But there are plenty of things you can do to help lower your auto insurance while you are working to rebuild your credit. Let’s take a look at a few of those and how they work.

Car Insurance Discounts

There are as many car insurance discounts as there are cars, it seems. If you take the time to talk with your agent and do a little research, you are sure to qualify for some of them. For example, if you haven’t had an accident or ticket in 3-5 years, you probably qualify for a good driver discount. If you take a defensive driving course, you will most likely be eligible for a discount. Installing anti-theft devices on your car can also earn you a discount.

Higher Deductible

If you can afford it, choose a higher deductible. Raising your deductible from $500 to $1,000 means your insurance company won’t have to come up with as much if you file a claim. That makes them very happy.

Buy a Safer Vehicle

When you are in the market for new wheels (new to you anyway), choose a vehicle that will be easy and cheap to repair – and that isn’t eye candy to thieves. Your insurance company will reward you with lower premiums.

Find Affordable Car Insurance Quotes Online Today

If you’re looking to lower your premiums, make sure you’re getting the best rate on your car insurance by shopping around. Why not get a free auto insurance quote online today? Feel free to give us a call at (800) 777-5620 or stop by one of our convenient locations, as well. Our agents are here to help you find auto insurance you can afford!

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