The Role of Credit Scores in Auto Insurance: What You Should Know

Your credit score has a much more significant impact on your auto insurance than you think. Beyond simply looking at your driving record, they also factor your credit history into their risk analysis, which significantly impacts your premiums. 

Insurance companies use credit information to indicate how trustworthy and responsible a person is, both on and off the road. Individuals with a higher credit score are believed to be more financially responsible and less likely to file insurance claims for their accidents or damages. Therefore, lower credit scores are associated with higher risk, increasing the likelihood of accidents and, therefore, increasing premiums.

You may think, "But what if I have a great driving record but a poor credit score?" Unfortunately, the insurance company will likely weigh your credit score more heavily than your driving record. This is because, from the insurer's perspective, your credit score presents a picture of your overall claim behavior. They also believe that a high-interest rate or poor credit history could increase financial pressure, leading to a higher risk of making claims, which puts upward pressure on your premiums.

To get a clear understanding of how much your credit score could affect your auto insurance rates, it's essential to know the different ways that insurers value one's credit information. Some of the usual ways insurance companies use credit scores include a credit-based insurance score, credit report, or credit-based insurance ranking.

Not all states allow credit to be used to determine insurance premiums. Before you check your credit score, you should verify with your insurer whether credit information is used in determining your auto insurance rates. If you live in New York, Hawaii, or California or have military status, credit cannot be used to determine your rates.