Does Your Credit Score Affect Your Insurance Rates?

Auto insurance is a thorny subject. It’s a necessary expense that helps you offset the much more expensive cost of a collision. But just because you can’t live without it doesn’t mean living with it is easy. Insurance rates have a nasty habit of rising each year — even if you don’t make any claims.

Your credit score may have something to do with that. Plenty of insurance companies look at your credit history when setting your rates, and they use it to calculate your auto insurance score. It, just like your driving record, age, and location, may affect your premiums.

Want to learn more? Keeping reading to find out how bad credit affects auto insurance rates.

What is Your Auto Insurance Score?

It’s a three-digit number that falls on a scale of 250 and 997. Many insurance companies use it to assess the likelihood you’ll file a claim.

It acts a lot like your consumer credit score, even though these numbers fall on different scales.

Remember as a borrower, a low score may act as a barrier when you’re looking for a personal line of credit, and you’ll likely pay higher rates than those with higher scores.

The same goes for your auto insurance score — the lower your score is, the more likely you’ll pay higher rates.

How is it Calculated?

Your auto insurance score bears more than a passing resemblance to your consumer file. It draws information directly from this report to calculate your number.

It’s hard to say what data gets used when generating this score, as insurers don’t divulge every entry they use and which ones they might ignore.

Nevertheless, it’s safe to assume most auto insurance scoring models will look at the following information:

  • Account age
  • Amounts owed
  • Payment history

What Impact Does This Have?

Amounts owed, length of history, and payment history give a pretty good snapshot of your habits as a borrower. It shows insurers how long you’ve had your online personal line of credit for, and how often you carry over a balance.

Perhaps most importantly, it shows whether you pay your bills on time.

As a general rule of thumb, something that looks bad in your consumer file will likely lower your insurance score.

For example, if you’ve only had your online personal line of credit open for half a year and haven’t paid a single bill on time, these entries will likely bring your auto score down.

How Can You Lower Your Premiums?

Generally, what’s good for your consumer history is good for your auto one, too. You may be able to impact it positively by paying bills on time and not carrying a balance.

It’s also important to remember that your auto insurance score isn’t the only thing that impacts your premiums. Taking the time to polish the other factors involved may help you lower your rates.

Insurers look at your driving record first and foremost, but they may also look at your:

  • Age
  • Sex
  • Marital status
  • Location

To be fair, moving to a state with lower premiums may not be practical. However, you may be able to offset a low auto insurance score by focusing on your driving record. Practicing defensive driving will not only help manage your insurance, but it will also help keep you safe on the roads.

Remember these tips the next time you’re shocked by the cost of insurance. You may not be stuck paying the big price tag for long if you manage to commit to these good habits.

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