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How Credit Affects Your Insurance

By Guest Contributor

Credit Knocks guest contributor. See guidelines.

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Summary: Your credit score affects way more than just if you qualify for a loan. Learn about how your credit score can affect your auto insurance.

The brutal truth is that your credit counts towards your car insurance too!

You already know that your credit score is a factor when you get a loan, buy a house or a car. What many people don't realize is how credit history can also affect how much you pay for insurance.

The insurance companies use driving history, type of vehicle, location of your house, already when figuring rates.

Now your credit score can adjust how much you pay for your insurance premiums. Your monthly rates for both auto and home are affected by the info in your credit history in most states.

credit score and car insurance

So, What's the Deal? What Exactly is a Credit-Based Insurance Score?

Your credit report information determines your credit score. It is then used by the different banks to determine how likely it is that you will repay a loan on time.

Those credit scores also determine if you qualify and even the interest rate you pay.

Your Insurance Score is different, yes it looks at some of the same credit information, but not all factors in your credit history.

When developing your insurance score, they don't use the following elements: sex, marital status, age, ethnicity, address, or income.

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So, what do they do?

Insurance companies in attempt to price policies based on how likely you are to file a claim use the following key factors in determining your credit-based insurance score:

  • Payment history, including delinquencies or late payments
  • Outstanding Debt
  • Length of credit history
  • Types of credit mix, such as credit cards and loans
  • The pursuit of new Credit, too many credit inquiries

How Does Credit-Based Insurance Scores Work?

How Credit Affects Your Car Insurance and Home Insurance

During the underwriting process, the car insurance company considers many factors such as but not limited to; your driving history, claims history, vehicle type, mileage drove, business use, and auto insurance score are factors used in the calculation of your insurance quote.

They also use these factors for eligibility of different levels of coverage and different payment plan options.

Homeowners Insurance companies follow the same process when you apply for coverage. However, the risk of providing home insurance is different than the risk of offering auto insurance.

Not sure about you, but I don't know a ton of people driving their houses around.

Since the homes are different, the companies use the same consumer credit information but develop a separate home insurance score.

In a recent study, we found that *48% of paying, credit repair clients got a 100+ credit score gain or more.   If you don't have serious time to devote to your dispute letters, we recommend you hire the pros to help.  Check out our #1 choice for professional credit repair. 

Why Do Insurance Providers Use Credit-Based Information?

Whether we like it or not, research shows that car insurance companies using credit scores can predict accident potential.

In 2003 The University of Texas did a study based on 175,647 auto insurance policies.

They found that those with lower credit scores had more car insurance claims with higher payouts.

The result of the study showed lower credit scores posed a higher risk to auto insurers.

Do All Auto Insurance Companies Use Credit-Based Insurance Scores?

Not all auto insurance companies use credit scores when determining insurance rates. The high-risk insurance companies who do not use your credit score do so by charging higher prices to start with. They already understand the relationship between bad credit, high risk, and more claims.

There are four basic categories of insurance companies:

Non-Standard Insurance Company 

Non-Standard insurers use other methods to determine car insurance rates, because they do not use credit reports. These companies understand they are providing coverage to the higher risk drivers. There is no reason to pay to pull a credit report when they only insure those who may have lots of tickets and accidents and or poor credit. 

To limit the risk, they only offer the smallest liability limits available or cap the largest limit at a lower level. Non-standard companies are the most expensive companies to get your insurance from. Many times, the insurance agencies offering these companies as an option to you also charge fees on top of your auto insurance quote.

Standard Insurance Company 

Standard insurance companies target the average person with their marketing. They can provide better insurance coverage and rates than the non-standard insurance company. These are the well-known companies you see advertising all over the place. Some of these companies do accept those with poor credit sometimes, but you will overpay for your insurance big time.

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Preferred Insurance Companies

Preferred insurance companies give the best rates and the best coverage to those who prove they can manage and improve their risk profile. They also give you more options to prove you deserve better insurance rates!

Preferred companies fight for those with the best credit history. They do it by offering more car insurance discounts and homeowners credits. They can do it because they know you will file fewer claims and cost them less when you do have a claim. Not only that, but they also offer higher insurance limits to better protect your family in case the worst happens.

High Net-Worth Insurance Companies 

High Net Worth Insurance Companies provide the ultimate level of coverage and service for those who have more stuff. For example, to qualify for the high net worth insurers, your house needs to be worth $500,000 or more for starters.

How Can My Credit-Based Insurance Score Help Me?

In general, the better your credit report is, the better your credit-based insurance score will be.

The better your score is, the better your car insurance rates will be. If you also own a home, yes, your home insurance rates will also improve!

Wanna Know the Easy Way to Repair Your Credit?

In a recent study, we found that *48% of paying, credit repair clients got a 100+ credit score gain or more.   Get help from the pros! ​Check out our #1 choice for professional credit repair.

Even with better credit, you may also now qualify for preferred insurance coverage that you were not eligible for before.

How Can I Improve My Credit-Based Insurance Score?

If you have poor credit, you are more than likely paying too much for your car insurance and/or home insurance. You can request a copy of your credit report to see which pieces of information may be hurting your credit-based insurance score.

Improving your insurance score is like boosting your regular credit score. Make your payments on time, pay bills, taxes, and fines/fees as agreed. If you are behind on any payments, catch up, and stay current. Keep your balances on credit cards as low as possible or pay them off each month if you can. Maintaining good credit habits will improve your fico score and insurance score. 

credit knocks logo

Increase Your Credit by 100+ Points

In a recent study at Credit Knocks, we found that *48% of clients who used a credit repair company got a credit score increase of 100+ points.

Consultation is quick, easy, and free.

Many insurance companies check your credit scores from time to time. So as you improve your credit score, you should see your insurance premiums getting better. Some insurers that use the credit-based insurance score only check it when you first start your policy.

If your credit has improved, call your independent insurance agent and ask them to re-calculate your insurance score. Some will apply the credit-based insurance discount right away; others will request it at the renewal of your car insurance policy.

Now That I Have Improved My Credit Score, How Can I Save Money On My Insurance?

It's simple, start by contacting a local Independent Insurance Agency in your area.

Independent Agents have access to many insurance companies and can work with you to find the best rates.

Or visit our review of the best credit repair companies of 2021

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