Your Credit Score Affects Your Auto Insurance Rates

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Your driving record is not the only factor determining your auto insurance rates. Auto insurance companies use your credit history to determine how risky a driver you will be.

Auto Insurance and Your Credit History

More than 90 percent of all auto insurance companies use credit information to evaluate every insurance policy they offer and renew. A credit scoring system called an insurance risk score is used by auto insurers to determine whether or not to issue an insurance policy, and if they do, to see how likely you are to file an insurance claim.

Already have auto insurance? Your current auto insurance provider also reviews your credit history and insurance risk scores to see if there is any reason to adjust your rate.

How Your Credit Score Affects Your Insurance Risk Score

FICO - The Only Score That Matters

Next time you apply for auto insurance, the unsurer will ask if they can review your credit score from one, or all three, credit reporting bureaus. This inquiry will appear on your report, but will not likely affect you credit score.

Your auto insurer uses your credit score as part of their calculations to determine your insurance risk score. The higher your credit score, better your insurance risk score will probably be. If your credit score is below 650, auto insurance companies may raise your rates, or even deny you coverage.

What Does Your Credit History Tell about Your Insurance Risk?

Insurance companies use studies that show a correlation between credit histories and insurance claims. If you have a high credit score, you probably have a healthly financial lifestyle. Your credit history reflects your sense of responsiblity, that you are probably not under financial stress, and therefore are less likely to drive in ways that wil result in an insurance claim.

Naturally the reverse is true. Troubles in your credit history, and a lower credit score, can suggest that you are less responsible, could be under financial stress, and therefore your behavior behind the wheel is likely to be more risky.

Of course, you could reasonably argue that your credit history has no bearing on your quality of driving. You could also argue that higher auto insurance premiums actually compound your financial troubles, thus adding to your stress and possibly increasing more risky driving behavior.

Improving Your Insurance Risk Score

In addition to maintaining a perfect driving record, improve your credit rating to improve your insurance risk score.

The best credit scores are born from healthy financial lifestyles. The two most important factors in establishing good credit are paying your bills on time and avoiding negative information in your credit history such as collection agencies and bankruptcy. With a good credit score, you have managed your credit lines very carefully, you are not in a lot of debt, and you only open new lines of credit when necessary.

 

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