Many people are not aware that their credit score can have an impact on the amount that they pay for car insurance, unless they live in Hawaii, Massachusetts or California, where the practice is outlawed. If you have just learned this, you may have many questions about this topic. This article will address a few frequently asked questions about auto insurance and your credit score.
Why Does a Credit Score Impact an Auto Insurance Rate?
Your credit score has a direct impact on the rates available to you or whether an insurance company will insure you. Of course, there are many other factors, such as your driving record, but your credit score does play a role. The reason for this is because research has shown that there is a statistical correlation between a credit score and how likely you are to file a claim. And the more claims you file, the more money the insurance company has to shell out. It is unknown exactly why this is the case, but the prevailing theory is that those with higher credit scores have the money or credit to make minor repairs to their vehicle, such as replacing a windshield or fixing a bumper themselves, rather than dealing with the hassle of filing an insurance claim and having their rates possibly increase. Those with lower scores tend to have less disposable income and fewer credit options, so their only option may be to file a claim.
Do All Insurance Companies Check Your Credit Score?
No, not every insurance company will check your credit score when determining your auto insurance rates. If you have bad credit, you may be better off using smaller or local insurance companies, as they are less likely to check your credit score. Major insurers are much more likely to check your credit. It is estimated that 92 percent of all major insurance companies use a customer's credit score to determine their rates in states where they are able to do so. While they look at other factors as well, your credit score does have a bearing on your rates if you are using one of these major insurers.
How Much More Can You Expect to Pay if You Have Bad Credit?
How much weight a credit score has in determining your auto insurance rates varies from company to company. Some companies are more inclined to look at your driving record, such as how long you have been driving, how many tickets you have had and how many accidents you have been involved in. Other companies weigh your credit score heavily and increase your rates drastically if your score is poor. A study conducted by Consumer Reports showed that a single driver with good scores, rather than excellent scores, paid anywhere fro $68 to $526 dollars more per year than similar drivers with excellent scores. Those with poor credit could end up paying as much as $1301 per year, just for having poor credit scores.
What Can Be Done to Mitigate High Rates if You Have Poor Credit?
If you have poor credit and are looking for a new insurance policy, you may be wondering if there is anything you can do to mitigate just how much you will pay for your bad credit. One of the best tips is to call around and attempt to find a company who does not use your credit score as a factor in your auto insurance rates. Another tip is to take the time to compare rates. Some companies may look at your score but pay closer attention to your driving record. This can cause your rates to be slightly higher than someone with good credit but not as high as they would be if you used a company who weighed your credit score heavily in determining your auto rate. The last tip is to work on improving your credit score. Once your credit score has increased, ask your insurance company to re-run your numbers, as the amount you are paying for auto insurance should decrease.
Your credit score impacts many things in your life. It can affect your ability to get credit and affect the interest rate you pay. However, it also can affect your auto insurance rates, unbeknownst to many people. Getting answers to the questions you have will help you to understand why, how much more it can cost you with less-than-ideal credit, and what can be done to if you have poor credit.Share