Auto Insurance and Credit Score: How They Relate
You almost certainly know that your credit score affects your ability to get a home mortgage or personal loan. But you may not be aware that it can also affect your car insurance rate. This means not paying your bills, having high credit card balances, maxing out credit cards, defaulting on a loan, having loans sent to collections, or filing for bankruptcy, can all affect your ability to get a good rate on your auto insurance.
Credit Score and Auto Insurance Score
Your credit score reflects your credit worthiness: whether you’re on-time with your payments, keeping balances low, and use credit responsibly — it’s supposed to predict your likelihood of defaulting on your obligations. Your insurance score, also known as an insurance credit score, is a little different: it predicts the risk of you filing a claim in the future.
It’s unlikely that your car insurance company is looking at your actual credit report. Instead, it receives your credit score, or insurance score, from one or more of the three major national credit repositories: Equifax, Experian and TransUnion.
Some, but not all, insurance companies use your credit score or insurance score, in conjunction with your driving and claims history, and other factors, to determine your car insurance rate. The states that don’t allow insurance companies to do this are California, Hawaii, and Massachusetts.
What this means is that if you have a high credit-score, a strong driving history, and few or no accident claims on your record, you’ll likely get a low auto insurance rate. On the other hand, if you have bad credit and a low insurance score, you’ll probably end up paying more in insurance premiums or have more difficulty obtaining coverage.