How Your Credit Score Impacts Your Car Insurance Rates

( – For an insurance company to set rates for you, they need to know a few things about you, including your driving history. To calculate premiums, they will use actuarial tables that take into account all the information about you.

What Are Credit Scores?

Credit scores are numerical representations of your credit history. They represent how well you have managed your credit in the past. Credit scores range from 300 to 850, with a higher score being better.

If you’ve been paying on time and maintaining low balances, your credit score will be high. On the flip side, if you missed payments or maxed out your credit card, it will negatively affect your credit score.

How Does Your Credit Score Impact Your Insurance Rates?

Your credit score helps determine how much of a risk you are for the insurance company. Insurance companies make money by charging you higher premiums and paying out less in claims. A low score means you have had trouble paying bills in the past and may be likely to claim your car insurance.

On the other hand, an excellent credit score shows that you are a safe bet for the insurance company because you have a history of paying bills on time and are less likely to make a claim.

Finding a Car Insurance Company That Doesn’t Use Credit Scores

Don’t think this is fair? Consider the following:

  • Shop around for car insurance rates until you find an insurer that doesn’t use your credit rating to set rates or premiums for auto insurance coverage (or at least doesn’t use it as heavily as many others do).
  • Ask your friends, family and colleagues if they know of a company that doesn’t use credit rating to set premiums.
  • If you have a good driving record, ask your current insurer if they offer non-credit based pricing options.

While it’s not the only factor, and is viewed by many as irrelevant, the unfortunate reality is that a driver’s credit score can influence their car insurance rates. Ask your insurance company about their underwriting practices and find out if they weight credit scores heavily or not at all. If they do, it may be time to move on.

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