Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer

UPDATED: Jul 14, 2021

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In a nutshell...

  • The only way to find out if one individual is a “good risk” is to insure the person for some time and see how they behave
  • Your age, the location in which you live and your gender are all considered when quoting car insurance rates
  • Car insurance premiums are calculated by using a fairly complex formula, created by people called “actuaries.”

Everyone knows that your credit score will determine whether you are offered lines of credit by credit card companies or merchants, how much interest you will pay for loans on your house and car, and even how you are viewed by potential employers.

Did you also know that your credit score affects the price you pay for car insurance? Enter your zip code above to get FREE car insurance quotes today!

How are car insurance premiums determined?

Car insurance premiums are calculated by using a relatively complicated formula, created by people called “actuaries” who are experts with probability and numbers.

The actuary’s job in any car insurance company is to predict how much risk you are regarding making future claims against your policy.

If you are young and healthy, the actuary’s figures will show that there is a very low probability of you dying before the policy expires, and you will probably be offered a low premium rate for life insurance.

Similarly, if you have several minor fender-benders in a short period, the car insurance company is alerted to the fact that you are not driving very defensively and may increase your premiums accordingly.

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How does your credit report play in the auto insurance score formula?

Most people understand this and they believe that their score is generated from these factors. If you do not have speeding tickets or accidents, then many drivers assume they will get good car insurance rates.

However, what many people do not realize that there is another factor which is often taken into account when figuring car insurance premiums – your credit history.

While it may seem counter-intuitive that a credit score would affect your insurance premiums, there is statistical support for using this method of generating auto insurance scores.

Data collected over a large group of people and for a long time period clearly shows that people with low credit scores have more tickets, more accidents, file more claims, and tend to sue more often than people with higher credit scores.

Others believe that people with lower credit scores may not take their financial investment in a vehicle as seriously as someone with a great deal to lose.

Will I always pay more for car insurance with a bad credit score?

Many people who have had severe financial luck are very careful with their cars, and many people with low credit scores have never had a ticket or been in an accident.

Unfortunately, an automobile insurance company has no way of knowing if you are one of the people who do not fit the pattern. The only way to find out if one individual is a “good risk” is to insure the person for some time and see how they behave.

For this reason, many car insurance companies use your credit score to initiate a policy price, but are willing to lower it after some time if you have no tickets or accidents.

Working to bring your credit score up and keeping your driving record clean are two ways you can help to bring your car insurance rates down.

Enter your zip code below to get FREE car insurance quotes today!