Shopping for car insurance is already an activity that most of us would prefer to delegate to someone else, but when one finds out that their credit score might actually play a part in the rate they get, it can turn into quite the headache inducing experience.
Most people assume that driving history, make and model of vehicle, and age are the factors that are taken into consideration when calculating your car insurance rate. These are important parts of the equation, but your credit score also impacts your proposed rate. See, many insurance companies now view your credit history as a way to assess how risky you are. If you miss a lot of payments, they consider you less responsible. As a result, you could face higher rates.
Credit Report and Car Insurance
While of course, driving history, age and type of car are vital in determining your car insurance premium, many companies now also take your credit score into account. Surprising to many, this is not a new practice. Though not very common in times past, some insurance companies like Youi Car Insurance have been using credit score as a part of your rate equation for close to a decade. Fast forward those ten years and now almost all insurance companies factor your credit score into calculating your proposed insurance premium.
The reason insurance companies use your credit score to help determine your car insurance premium is that they feel there is a correlation between one's credit score and the number of claims the person is likely to file. Those with good credit scores, rightfully or not, are seen as “safer” customers to insure, likely to file fewer claims, and thus able to glean a better rate. Those with lower credit scores are likely to see higher premiums, as insurance companies see them as a greater fiscal risk.
One's credit score seems to impact so many areas of life that poor credit can have a negative impact on even one's ability to drive affordably. With each passing year, one's credit score becomes more and more important, illustrating the need to keep one's credit as good as possible.
This can be especially impactful to new drivers who are just learning how to drive. If you don't have a credit score (because you're young), it could be tougher to get insurance as well. In cases like this, it could be helpful to get car insurance from ILD, since they offer insurance for people learning to drive.
What You Can Do
In many places, it is against the law to drive without car insurance, so not having it is not an option. A good credit score makes like, in general, more affordable. Working towards improving your credit score will help you get a better rate on car insurance. There are also a number of car insurance companies – mostly locally operated endeavors – that do not use your credit score when determining your premium. If the rates you are looking at with larger companies are too great, consider looking into a smaller provider that does not use credit scores in determining rates.
While it might, at first, seem a bit counterproductive, one's credit score can affect the rate that you pay for your car insurance. Those with higher credit scores are seen as less risky customers, far less likely to stick the company with claim after claim, and thus will qualify for better rates than their counterparts with poorer credit scores. Improving one's credit score is the best path to saving money – on car insurance and many other of life's necessities.
Readers, has your insurance ever been impacted by your credit history?