If you are a safe driver with a clean driving record, congratulations! Your safe driving is helping to keep your auto insurance rates down. But if your credit score is sketchy, your auto insurance rates may go up anyway. In fact, poor credit can negatively affect your car insurance rates more than a DUI would!

The Relationship Between Credit Scores and Auto Insurance Rates_ImageWhy do Insurance Companies Care about Credit Scores?

Because credit scores can accurately predict who will be in accidents. People will lower credit scores get into more accidents and cost insurance companies more than do people with higher credit scores.

This has been proven, twice:

  1. The University of Texasstudied 175,647 policies in 2003 and found that drivers with lower credit scores simply cost insurers more than drivers with higher credit scores.
  2. This study was replicated by the Federal Trade Commission, who also found that credit-based insurance scores are effective predictors of risk.

How do Insurance Companies Access your Credit Score?

Your insurance company will not ask you directly about your credit history or your credit score, but when preparing a quote for you, they will leverage your social security and/or driver’s license number. As part of the quote preparation process, the insurance company will access your credit report and create what they call an “insurance score.”

How Big of an Effect Does Your Credit Score Have on Your Rates?

Robert Harrow, an analyst for Value Penguin reported in the Huffington Post on June 17, 2016, that they conducted a small study in which they “…took a sample 30-year-old male driver, and obtained auto insurance quotes for him based on excellent, good, fair, bad and poor credit scores. We considered drivers in both New York City and Salt Lake City. What we found was quite staggering. In Salt Lake City, a premium was nearly twice as expensive for someone with poor credit (below 500) than someone with excellent credit (above 720). The quotes from New York followed the same pattern. Based on these findings, having a bad credit score affected our driver more than having a DUI on his record.”

Which Insurance Companies Do This?

Just about all of them consider all or particular portions your credit report when calculating your auto insurance payments. However, this approach is not allowed in Massachusetts, California and Hawaii.

If You Improve Your Insurance Score Can You Lower Your Premiums?

Yes – but when you are asking for a new quote, be sure to ask the insurance company to run a new credit score report, otherwise they’ll use the old one.

 

 

For additional information about factors that may impact your car insurance rates, please contact us.