Will my credit score affect my car insurance?

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In a nutshell...
  • Your credit score may affect your insurance premiums
  • Not every state or every car insurance company requires the use of a credit score when it comes to factoring your auto insurance premiums
  • If you are worried about paying inflated car insurance rates, you can use a comparison tool to find an affordable auto insurance policy

According to CBS News, a bad credit score could double your car insurance rates. This is terrible news for individuals with less than perfect credit or those who have recently fallen on hard times.

Thankfully, you can mitigate some of the cost by using a comparison tool to view car insurance quotes and purchase a new policy.

Why does a bad credit score negatively affect car insurance rates?

Car insurance companies use various factors to determine your risk for getting into an accident, and your credit score is one of those factors. To a car insurance company, a bad credit score translates to a risk.

In an insurance provider’s eyes, someone who has bad credit is more likely to not pay their premiums or to file a claim in order to afford even minor damages.

Essentially, bad credit reads as lack of funds to an auto insurance company.

The belief is that a driver with more financial stability and presumably more disposable income would be more likely to pay for the damages of a minor accident themselves rather than file a claim and wait for the insurance company to make a decision on the claim.

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How does my credit score impact my car insurance rates?

Drivers with bad credit scores aren’t the only drivers to get hit with increased rates. According to ConsumerReports, even drivers with good credit scores could feel the pinch of increased rates because their scores are lower than 750.

For example, drivers with good credit in Nevada can expect to pay $338 more per year than a driver with excellent credit. A driver with poor credit can expect to pay $2,000 more than a driver with excellent credit.

This is especially shocking when you realize that a driver who has had a DWI with excellent credit only pays $758 more than the driver with excellent credit and no DWI.

According to Equifax, credit scores are given a rating between 300 and 850. A credit score is ranked as follows:

  • 750 or higher  excellent credit
  • 700 to 749  good credit
  • 650 to 699  fair credit
  • Below 600  poor credit

Can I improve my credit score to get better insurance rates?

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You can improve your credit score over time in order to lower your insurance rates. However, it’s not an overnight solution. Forbes recommends getting a copy of your credit report and thoroughly reviewing each account listed to make sure the information is correct.

  • Have Errors Removed from Your Report – If you find errors in your credit report, dispute them. All of the credit bureaus provide an option to dispute the accounts that are listed on your report.
  • Utilize Debt Negotiation – You should also negotiate unpaid bills. This involves calling the creditor and negotiating a settlement. Just make sure yo get the settlement amount in writing before paying the bill.
  • Pay Down or Increase Your Credit Limits – You can also pay down your credit card debt in order to ensure that you are not using all of your available credit. Asking for an increase on your credit card may also help with this task.

While you are working on improving your credit score, you can take advantage of a comparison tool to shop for lower auto insurance rates.

A comparison tool allows you to quickly locate all the available policies in your area that match your criteria.

From there, all you have to do is evaluate the policies to make sure they meet your financial needs and your driving needs. Enter your zip code below to get started!

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