Does My Credit Rating Influence My Car Insurance Premiums?

Factors that Affect Your Auto Insurance Rates

The following rating factors are among a number that influence your auto insurance premiums:

1. Age or driving experience;
2. How your vehicle is used;
3. Driving and claims history;
4. Geographic location;
5. Credit history; and
6. Make and model of your vehicle.

Credit Rating and Insurance Scores

Many U.S. car insurance companies use credit-based insurance scores to help determine risk.  A credit-based insurance score allows insurers to quote the fairest, most appropriate rate for every customer.

What Does Your Credit Have To Do With Your Auto Insurance Score???

Credit-based insurance scores, which rely on using an individual’s credit history as a factor in determining a car insurance premium, affect many different lines of insurance, from home to auto.

If you’ve never heard of an auto insurance score, also known as a credit-based insurance score, you’re probably not alone.  Insurance scores were introduced in the early 1990s by auto insurers as another factor to help predict the likelihood that an insured driver would have an accident or file an insurance claim.

What is an Insurance Score?

Insurance scores are numerical scores created by insurers to predict the likelihood that you’ll have an accident or fill out a claim. The scores are calculated from information on your credit reports. Car insurers use auto insurance scores as one of many factors to determine how much you’ll pay for car insurance.

How do Insurance Scores Affect My Rates?

Your auto insurance scores affect your auto insurance rates much like you would expect your credit scores to affect your interest rates on new loans.

What we mean is, the higher your insurance scores, the lower your auto insurance rates will typically be.  On the other hand, if your insurance scores are lower, your auto insurance rates will more likely be higher. Of course, insurance scores are only one of many factors that determine your rates and only do so if insurance companies are allowed to use them.

So Why The Connection?

There has been data that shows how your credit scores and auto insurance rates correlate.

According to The Zebra’s “The State of Auto Insurance Report for 2016,” drivers with poor credit scores (524 or less) have an average insurance premium of $2,411, while drivers with excellent credit scores (823 or higher) pay only $1,130 on average, which is a savings of 53 percent.

Calculating Insurance Scores

When calculating your insurance scores, insurers generally look at the following:

1. The length of your credit history;
2. Number of accounts in good standing;
3. Payment history;
4. Credit utilization rate;
5. Collections accounts; and
6. Recent applications for credit.

That said, laws vary by state, so what is used may vary on a state-by-state basis.

Ohio and Credit Scores

In Ohio, your credit rating influences your car insurance premiums.  That means that if people are applying for car insurance and every factor in their rating is exactly the same except one has a lower credit score, the individual with the LOWER credit score is going to pay more in premiums.  However, if you have a high credit-based insurance score, an excellent driving history, and zero claims on your record, you’ll typically qualify for lower rates.

How to Improve Your Insurance Scores

If you feel you want to improve your scores, there are a few things you can do, or avoid doing, to improve them.  Responsible activity can increase your insurance scores. For example, you can do the following:

1. Make all of your credit card payments on time;
2. Keep your credit utilization down;
3. Have numerous accounts in good standing; and
4. Keep your oldest accounts open to show a long-established track record.

On the other hand, some actions will lower your insurance scores:

1. Making payments after the due date;
2. Allowing accounts to go to collections;
3. Developing a high credit utilization ratio; and
4. Filing many recent applications for new credit.

Credit Rating and Accident Potential

To establish eligibility for payment plans and to help determine insurance rates, most U.S. insurance companies use credit-based insurance scores, along with your driving history, claims history, and many other factors.  While the reasons why are less than crystal clear, research shows that credit scores can accurately predict accident potential.  Statistical analysis shows that those with higher credit scores tend to get into fewer accidents and cost insurance companies less than their lower-scoring counterparts.