Why Do Auto Insurance Companies Take Your Credit Into Account?

Many of the major auto insurance companies in the United States consider your credit with car insurance applications. Analyzing credit scores helps them decide whether they will offer insurance to a person, and how much they should charge.

Here’s an overview of what you should know about the influence of credit reporting on your auto insurance.

Credit scores and insurance rates

Credit scores are designed to help creditors determine how likely it is that a person will make your payments on time. If you have poor credit scores, this could hurt your ability to get a loan, or result in you being charged higher interest rates. The FICO scores won’t be used for insurance purposes, though.

There are, however, credit-based insurance scores, which are based primarily on your credit reports from the major credit bureaus. These scores are designed to help insurance companies determine the likelihood that you will file an insurance claim that costs the company more than it collects in premiums.

Some of the factors that affect standard credit scores could also influence credit-based insurance scores, including on-time payment history and debt balances. People with poor credit may therefore find it slightly more difficult to get approval for an auto insurance policy, or might be charged higher insurance premiums.

Keep in mind, though, that there are more factors than just your credit that go into insurance companies’ decisions. In some states, the use of credit-based insurance scores is either banned entirely or severely restricted.

Other factors insurance companies will look at

So, if credit-based insurance scores aren’t the sole factor providers will look at when making decisions related to your coverage and premiums, what are some of the other factors you should be aware of? Here’s a quick look:

  • Driving record: If you have a clean driving record without a history of at-fault accidents or driving citations, this will help you get lower rates.
  • Demographics: Basic demographic information like age, sex and marital status can influence your rates.
  • Location: Some areas might be more prone than others to accidents, theft or vandalism, which makes it more expensive to insure vehicles in those areas.
  • Car: The type of vehicle you drive will heavily influence insurance rates. In general, fancier and more expensive cars will cost more to insure. In addition, some specific colors of cars will come with higher insurance rates, especially if they are flashier.
  • Company: Every auto insurance provider will have its own pricing for certain types of coverages, and will offer different packages for you to peruse. This is why it’s a good idea for you to seek quotes from multiple companies.
  • Discounts: You might be eligible for certain discounts that can lower your insurance rates, especially if you bundle your auto insurance with other policies (homeowners, life, renters).

Want to learn more about the factors that influence the cost of your car insurance plan, and about the influence of credit reporting on insurance? Contact our expert team at Affordable Car Insurance Tampa to learn more. We look forward to answering your questions.