How Credit History Affects Your Auto Insurance Rates

How Credit Affects Your Auto Insurance Rates

It used to be that only the institutions interested in extending credit cared about your credit report. Nowadays however, auto insurance companies may also consider your credit history before making a decision as to whether or not they’ll insure you. What they learn may also play a role in the rate you pay for your premium.

What your credit history says about you

Why should your credit history matter to your auto insurance provider? Well, the way you’ve used (or misused) credit in the past seems to them to be a good indicator of your degree of risk. Having a history of using credit wisely—doing things like paying your bills on time and not exceeding your credit limits—suggests a less likelihood that you’ll be involved in an accident and file auto insurance claims. Likewise, if you pay your other bills on time, auto insurers assume you’re more likely to pay your auto insurance premiums on time, too.

A blemished credit history suggests that you are perhaps a bit irresponsible. If you’re careless about paying your bills and using credit, there’s a chance you may also be a careless driver. Such perceptions can trigger red flags among auto insurers, flags that assign you to a higher risk group. If you’re considered a high risk, your application for auto insurance coverage may be denied. Or if it’s approved, the rates you’re quoted will likely be higher to offset the increased risk.

Keeping risk to a minimum

Like creditors, auto insurers prefer to do business with drivers whom they consider to be less of a risk. Your credit history is just one of the factors they use along with your age, gender, driving history, and the type of car you drive to help determine that risk.
There are a few states that do not allow auto insurance companies to consider your credit history in making this determination. But even if you live in an insurance state that does not factor your credit history into its decision-making process, it’s still important to establish a history of using credit responsibly.