Does Your Insurance Credit Score Affect the Cost of Your Auto Insurance?

Posted on November 10, 2018
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You know you have a credit score. Did know that you have an insurance score?

You may have never heard of it before, but your insurance score is one way insurance companies measure your insurability. Much like a credit score, this insurance score helps companies determine the risk of insuring you.

Your insurance score isn't much different from your credit score. However, insurance companies use the information in a different manner.

Your insurance credit score is an important factor when you take out a new insurance policy. Continue reading below to find out how these numbers affect your auto insurance rates.

How Do Companies Calculate Your Insurance Credit Score?

Insurance companies will look at your driving history, such as moving violations and accidents. Using this information, they will try to predict the probability that you will make a claim in the future.

Insurance companies will use your credit report to calculate your credit-based insurance score. During the underwriting process, companies look at your payment history and credit balances.

The idea is that if you make bad credit decisions, you are more likely to make bad decisions in general. This could negatively impact the way insurance companies view your reliability.

A poor credit report could lead insurance companies to believe that you will make mistakes they have to pay for.

How Does This Affect Your Insurance Policy?

Having a poor credit score does not necessarily meant that you won't be able to get insurance. It does mean, however, that you may not get the policy you want.

Much like your credit score affects the rates you get on a loan, your insurance score impacts your rates.

If you have a bad insurance score, you will pay higher premiums. If your insurance score is higher, your premiums will be lower.

If your insurance credit score is bad enough, an insurer may deny you a policy. This will force you to shop around more.

Improving your credit score could greatly decrease your insurance rates. You could be saving money when you take steps to improve your financial health.

Is It an Accurate Measure?

There is much debate over whether or not using a person's credit score to determine insurability is accurate or ethical. This battle has been going on for the last fifteen years in Canada.

In the United States, several states have placed bans on credit-based insurance scores.

Some politicians have objected to the practices of insurance companies. Some have stated that it is unfair to require someone to grant access to their credit report in exchange for insurance.

Over the years, multiple provinces have placed bans on credit-based insurance scores.

Auto insurance companies often claim there is an inherent link between credit scores and insurability. Opponents claim this is a tactic to prey on the poor and sick.

The debate is sure to continue as new evidence arises. It may be difficult for insurance agencies to maintain the practice.

How Can You See Your Score?

The average consumer will never see their insurance score. However, you are entitled to viewing this information.

Your insurance score is directly related to your credit score, which you have access to. You can check your credit score with some credit card companies.

There are a number of online services that will allow you to view your credit score. Be careful that the service you use doesn't run a hard credit inquiry.

While soft credit inquiries don't damage your credit, hard credit inquiries do.

How Can You Improve Your Insurance Score?

You can improve your score in the same way you can improve your credit score. Always be mindful of best practices regarding your credit.

Stay on top of all your credit obligations. Make sure you make all payments on time.

Keep all your balances as low as possible. In general, you should keep your balances below 30% of your total line of credit.

More credit used across all accounts will increase your credit utilization ratio. This is the ration of all your credit account balances to your total lines of credit. It is best to keep it as low as possible.

Additionally, you should avoid opening new lines of credit unless necessary. Keep your oldest accounts open to show that you have a long, healthy credit history.

The purpose of your credit score is to measure the likelihood that you will repay the money you owe. A high credit utilization ratio could indicate that you are overextended.

This is because the accounts may become too difficult for you to pay down.

Will Improving Your Score Save You Money?

You may be wondering how you can get cheaper auto insurance. Will improving your credit score help save you money on insurance?

In short, yes. If you are financially responsible and take care of your credit, you should be able to secure lower insurance premiums.

Taking steps to improve your credit score has a variety of benefits. You will notice that you can secure loans at lower rates.

You will have a better chance of getting a mortgage for your home.

You may find that it is easier to lease a car, rent an apartment, and more. It is in your best interest to stay on top of your credit and keep your score high.

While it may be a difficult and lengthy process, you will be thankful in the end.

Take Care of Your Credit, Get Better Premiums

You cannot drive on the roads without insurance. You may be struggling with expensive auto insurance premiums. You're wondering how you can keep these down and have more money for the things you love.

Your credit score often has a direct influence over your auto insurance premiums. If you can improve your insurance credit score, you will notice many benefits. Lower auto insurance premiums are only the tip of the iceberg.

To find out how you can find the cheapest auto insurance and more, check out more of our articles.

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