You hopefully already have car insurance, as it is legally required. If you are thinking of switching insurance or buying your first car, you should make sure you understand how your credit score will affect the auto insurance rate you pay.
Does It Affect the Auto Insurance Rate?
The short answer is that yes, your credit score will likely (but not always) affect your auto insurance rate. The relationship between the two is the same as it is for opening a credit card or getting a loan. That means a higher (or better) credit score typically results in lower car insurance.
Research indicates that people with lower credit-based insurance scores tend to have a higher chance of filing claims. Insurance companies charge higher rates to make up for this and maintain their profits.
There Are Variations – Not All Do
The thing to remember is that not all auto insurance companies have the same policies. One may consider your credit score to be high, while another may consider it low.
Additionally, not all car insurance companies will consider your credit score. In fact, some states have banned them from doing so. That being said, some studies show that 92 percent of insurers consider your credit score.
What Parts of Your Credit History Will Car Insurance Consider?
In the case of car insurance that does consider your credit score or history, they will likely pay close attention to the length of your credit history, the types of credit you have (including loans and credit cards), and your payment history.
What Else Affects Your Auto Insurance?
In addition to potentially considering your credit score, car insurance companies also consider the following factors:
- Driving experience.
- Vehicle, including make, model, and age.
- History of accidents and claims.
- How much you drive each year.