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How Credit Affects Car Insurance In 2019

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Summary: Learn how your credit score will affect your car insurance quotes and why you need to compare rates.

When most people think about car insurance they don’t normally consider their credit score as a factor that might determine their rates.

The reality is that your credit score can actually drive up the cost of your car insurance premium significantly according to Consumer Reports

We are here to tell you why that is and what you can do about it. 


The Cost of Bad Credit

For many, it’s hard to make ends meet. Between daily household expenses and monthly necessities such as car insurance, money never seems to stretch far enough.

But we all find ways to save money. We remember to turn off the lights in rooms after we leave them, and stop the water when we brush our teeth. In the same way, there are all kinds of ways to save money on car insurance.

Believe it or not, the easiest way to do that is by keeping an eye on your credit report.

Consumer Reports 2017 study found that:

“Single drivers who had merely good scores paid $68 to $526 more per year, on average, than similar drivers with the best scores, depending on the state they called home.”

According to rate data analysis, you could be paying big bucks on car insurance in the Sunshine State if your credit score has a few dings.

Take a look at the chart below to see what we mean:

Company

Credit

Rate

USAA

Good

$1,645

USAA

Fair

$2,266

State Farm

Good

$2,495

Geico

Good

$2,506

State Farm

 Fair

$3,046

Geico

Fair

$3,336

Nationwide

Good

$3,596

Nationwide

Fair

$3,982

Liberty Mutual

 Good

$4,110

Progressive

Good

$4,302

USAA

Poor

$4,639

State Farm

 Poor

 $4,652

Liberty Mutual 

Fair

$5,074

Progressive

Fair

$5,170

Allstate

Good

$5,315

Nationwide

Poor

$5,441

Geico

Poor

$5,510

Allstate

Fair

$6,574

Liberty Mutual 

Poor

$6,921

Progressive

Poor

$7,278

Allstate

Poor

$10,432

car rates by credit score

Not to worry though! There are ways to improve your credit score and save money in the process.

Understanding Your Credit Score

Credit scores are not the easiest things to decipher. Understanding what your credit score is and how you can improve it can go a long way towards saving you money on your car insurance policy though.

According to Investopedia:

“A credit score is a statistical number that evaluates a consumer's creditworthiness and is based on credit history.”

So what is your credit history?

Your credit history is a list of credit accounts that you have in your name with information about how long the account has been open, how much you owe on the account, and whether or not you have made your payments on time.

It is important that you keep an eye on your credit report and request that all errors or outdated reporting be removed from it.

As a consumer, you are entitled to one free credit report from each of the three major credit reporting agencies in a 12-month period. These credit agencies are:

Each of these agencies keeps track of your credit history and can help you remove inaccurate or outdated information upon request.

Tools to Rebuild Your Credit

Along with monitoring your credit report, there are also a variety of tools that you can use to improve your credit score.


Some of these include:

  • Paying your bills on time
  • Paying off debt
  • Keeping balances low on credit cards
  • Not canceling unused credit cards
  • And not opening new lines of credit

Knowing which companies can help you build your credit or improve your credit score can help you determine which credit lines to keep open and which ones to cancel.

Picking the right lines of credit to maintain is also key to turning things around with the way that car insurance providers see your credit score.

Why Credit Scores Matter

So why do car insurance providers look at your credit score when setting your car insurance rates?


The simple answer is that car insurance companies use your credit score as a means for determining whether or not you might be more likely to file a claim after a car accident.

The reason for this is that people with better credit scores usually have better-paying jobs so they are more likely to pay out-of-pocket for any damages incurred in a car accident.

The Insurance Information Institute (III) also points out that:

“People who manage their finances well tend to also manage other important aspects of their lives responsibly, such as driving a car.” 

This is still up for debate though.

According to the National Association of Insurance Commissioners (NAIC), insurance providers are looking at the following information when using credit as a factor for determining your rates:

  • Payment History (40%)- How well you have paid your bills on time in the past.
  • Outstanding Debt (30%) — How much you owe to outstanding credit lines.
  • Credit History Length (15%) — How long you have had your lines of credit open.
  • The Pursuit of New Credit (10%) —Whether or not you have opened (or tried to open) new lines of credit,
  • Credit Mix (5%) — The types of credit lines you have open (mortgages, auto loans, credit cards, etc.)

There are things that car insurance providers are not allowed to use when determining your credit-based insurance score.

These things include:

  • Your race or national origin
  • Your religion
  • Your child/family support obligations
  • And whether or not you are participating in credit counseling.

If you feel like you have been discriminated against by your insurance provider you can file a complaint with the State of Florida through the office of Florida’s Chief Financial Officer.

What Now?

So now you know what your credit score is, how it is determined, and how it can impact the rate that you get for car insurance. 

You may be wondering what to do next with all this information.

If you are in the middle of your policy term limit, you still have time to make some marked improvements on your credit report in order to save money when it comes time to renew your policy.

If renewal is upon you, don’t fret.

There are plenty of other discounts out there that can help you save money during the term limits of your upcoming policy while you clean up your credit report and improve your credit score.Some of these discounts include:

  • Safe Driver
  • Good Student
  • Military and Veteran

You should also ask your agent if bundling home and auto policies might save you a few dollars. After all, every penny counts right?

Like most people, I didn't grow up in a home that provided me with a credit education, and we didn't learn about credit or how to be financially responsible in school.

Usually our first time learning about credit is when we are in a situation where we need it, but don't have it.

Now that you have the basics and understand what credit is, you should take our Free 90 Day Credit Sprint Challenge.

You have done the right thing and started to take responsibility for your financial future, there is no reason to stop here.

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


sa_el_co_founder

By Sa El
Last Updated 6/9/19


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