Why Does My Credit Affect My Car Insurance Rates?

You are probably well aware that a variety of factors can impact your car insurance rates. Factors include your age, driving record, where you live and the make and model of the car you drive. There is another aspect of your everyday life that can have an effect on your car insurance rates. That is your credit rating.

What? Why would a driver’s credit rating affect their car insurance rates?

First, you should understand that using a credit score to help determine car insurance rates is not new. It is a practice that has been ongoing for over two decades. The practice is a result of two studies, one from the Federal Trade Commission (FTC), that shows there is a correlation to a person’s credit score and how expensive that person can be to insure. In other words, the lower a person’s credit score, the more likely they are to file a claim. Not only are they more likely to file a claim, but the claims they file tend to be larger. 

Insurance companies also prefer to insure people who keep their policies for long, uninterrupted periods of time. Struggling to maintain good credit may be an indication they are more likely to let a policy lapse. This also can make it more expensive for a company to insure such a person. 

The difference between auto insurance rates with very poor credit and very good credit is not insignificant. Surveys have shown those with excellent credit can pay two or three times less than those with poor credit. That can make improving your credit score extremely worthwhile. 

In reality, your credit score affects many areas of your life. It will impact your ability to get a loan and how high of an interest rate you will pay if you do. It may impact you if you qualify for an apartment or even certain jobs. it may also impact the price you pay for your auto insurance. 

If you are paying too much for car insurance, work to improve your driving record and your credit rating. You can also contact one of our independent agents. We will shop for you, comparing insurance rates from a variety of providers. We’ll seek out discounts you may qualify for. We’ll get you the coverage you deserve at a price you can afford.