Car Insurance and Credit Scores

It’s not a practice in every state, but the majority of car insurance companies do look at prospective policyholders’ credit scores. Your credit score is based on your credit card payments and how often you make your monthly payments on time. This is one of the foremost ways to gauge your financial reliability, which is everything when it comes to car insurance since rates are paid on a monthly basis. There are several studies, some by the Federal Trade Commission, that back this fact up. At the same time, car insurance companies have their own credit scoring system. Let’s look at how all these tie into pricing a car insurance policy. 

Why Car Insurance Companies Look at Credit Scores

As previously mentioned, it’s for the purpose of gauging how much of a risk it would be to insure that respective person. There is naturally a correlation between being late on monthly payments when it comes down to it, but it was also discovered that those with low credit scores are more likely to file insurance claims. 

What Car Insurance Companies Look at in a Credit Score

If a credit score is at least 670, then it is defined as a good score. Car insurance companies will smile upon any score within this range. When this kind of score is consistent for a series of years, then that will cement you as a reliable credit cardholder that makes payments on time. Any open or existing accounts are in good standing with no signs of late payments or anything else past due. Because of this, it helps to have at least a couple of years of tangible credit history and to avoid any gaps, similar to car insurance. 

Credit-Based Insurance Scores 

Several car insurance companies use a credit-based scoring system of their own. Unlike a traditional credit score, this one isn’t based on personal factors such as occupation or income. This score simply just looks at your driving and insurance claims history. This score is shared among insurers so they can gauge your risk if you are ever buying new coverage or going with a new provider. 

Keeping Your Credit Score And Car Insurance in Good Standing 

In conclusion, managing your credit score and getting cheap insurance rates come down to two things –making your payments on time and being the safest driver that you can be. Insurance companies tend to notice and reward these behaviors, and your credit score will follow you into other areas of life, such as renting an apartment, so the benefit is instantaneous and everlasting.