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Your Credit Score And How It Affects Finding A Cheap Auto Insurance Rate

Using credit scores to determine auto insurance rates is standard practice for most car insurance companies. While credit scores and auto insurance don’t seem to have a correlation, insurance companies have found that those individuals who have bad credit scores are more likely to file an auto insurance claim, while those who have a good credit score are less likely to file a claim with the company.

Using Credit Scores to Determine Auto Insurance Rates: Fair?

Many consumer groups have argued that using credit scores as a way of determining price and eligibility for auto insurance is unfair and that it profiles people. They reason that sometimes bad credit history is not a person’s fault if for example they lose their job and are unable to pay their bills. They also argue that the credit files could make mistakes, thus causing insurance customers to be unfairly charged with higher premiums.

The FTC And Credit Scores In Determining Auto Insurance Rates

Because of all the controversy surrounding credit score practices the Federal Trade Commission (FTC) was assigned to investigate whether credit score practices should be allowed as a factor in determining auto insurance rates. They found that all of the major auto insurance companies use credit based scores to some capacity and after investigating, determined that the use of credit scores was acceptable, thus siding mainly with the insurance companies.

Despite the FTC’s approval of credit based scoring, most states stepped in and used legislation or regulatory action restricting and in some cases banning, the use of credit scoring in car insurance policies. Effectively, this prohibits insurance companies from using credit history as the sole basis for denying, canceling, or failing to renew a policy.

The Difference Between Your Credit Score And Your Insurance Score

While your credit score can leave you ineligible for certain loans, your insurance score is different. Your insurance score is a score calculated from your credit score and is used to predict the likelihood of you becoming involved in a future accident or insurance claim. It is based on information gathered from policy holders with a similar credit history.

Favorable Credit Factors

Having a good credit history can work to your advantage when purchasing car insurance. Factors the auto insurance company will look for that will work to your advantage include; a long credit history, numerous open accounts in good standing, no late payments or past due accounts, and low use of available credit.

Unfavorable Credit Factors

Conversely, a poor credit history could raise your auto insurance rates. Some things to avoid include; collection accounts, numerous past due accounts, high use of available credit, and numerous recent applications for credit.

What Your Credit Score Means For Your Auto Insurance Rate

If you have a poor credit history then most auto insurance companies assume that you will be more likely to file a claim and thus assigns you a higher car insurance rate. Customers with a good credit rating are assigned a good insurance score because they are deemed less likely to file an auto insurance claim and as a result usually pay a lower auto insurance rate. Fair or not, it is important to take steps to obtaining a good credit score and subsequent good insurance score to find the cheapest auto insurance rate.

Have Bad Credit? You Can Still Find A Cheap Auto Insurance Rate!

If you have a bad credit score and need to find cheap auto insurance then you should compare car insurance quotes from multiple insurance companies. Auto insurance companies handle the issue of poor credit scores differently and it may be that you can find a much cheaper auto insurance rate simply by doing a little comparison shopping.

Use our free auto insurance quote finder to compare quotes from the top auto insurance companies that offer coverage in your home zip code. Just plug your zip code into the quote box at the top of the page or on our home page and get started finding cheap auto insurance now!

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