Credit Scores and Your Car Insurance Rates

What's the difference between 700 and 580? As far as your credit score is concerned, it's the difference between good and bad. And your credit score can mean the difference between having a low car insurance rate and an above-average car insurance rate.

There are benefits to having your credit affect your car insurance. In fact, over 50% of all policy holders have lower premiums because of their credit score. Also, car insurance companies can now better accurately price their insurance, according to the Insurance Information Institute (III).

How Do Car Insurance Companies Use Your Credit Score?

Insurance laws and regulations are determined at the state level, so each state determines what information car insurance companies can use in determining your rate. Also, many states require auto insurance companies to tell consumers what top factors have been used in determining rates. If you're interested in finding out if your credit score was used to determine your rates, contact your insurance carrier.

Why Do Car Insurance Companies Use Credit Scores?

More and more car insurance companies are correlating credit scores with the likelihood you'll file a claim. Basically, the higher your credit score, the less likely you are to file a car insurance claim.

The average cost of a claim for a person with below average credit is $918—53% higher then the average claim. Likewise, the cost of an average claim from a person with above average credit score is $558—23% below the average claim (III).

The better your credit score, the better your car insurance rates will be. If you do have below average credit and feel that your car insurance rate is still too high, shopping around for car insurance could save you money.