Do you know which factors go into how much you pay for your auto insurance premiums? Yes, things like your age, driving record, vehicle year, make, and model, and your geographic location all matter, but so does your credit score.
Why does your credit score matter? How do insurance companies use it to determine how much you should pay for auto insurance? Do insurance companies report your payment record to the big three credit bureaus? Keep reading because we’ll answer all of those questions and more here.
Understanding Your Credit Score
If you’ve never looked at your credit score before or sought out ways to understand what those numbers mean, this is a good time to start. Your credit score is numerical and runs between 300 and 900. The higher the number, the better your credit.
What’s factored into your credit score? There are many things, including your payment history, your debt-to-income ratio (the lower the ratio, the better), and what types of debt you have. Secured debts, like mortgages and auto payments, are better than having a lot of unsecured debts, like credit cards.
In addition, the number and types of credit inquiries matter as well. When you apply for a loan, your credit score reflects that as a hard pull, and the three credit bureaus can use it to lower your credit score. Soft pulls, like those made by insurance companies, won’t harm your credit. Keep in mind though, that if you don’t pay your auto insurance premiums on time, the company could report you to the credit bureaus, and your payment history could hurt your credit score.
Credit-Based Insurance Scores
When you apply for auto insurance (or any type of insurance, for that matter), the insurance company may put together a credit-based insurance score. This number includes your overall credit score, and also looks at your driving record, income, and other factors. The insurance company then produces a score that will tell them how likely you are to get into an accident or call in a claim, among other things.
These credit-based insurance scores are then used to determine the overall cost of your insurance premiums. The ratio and numerical system that the companies use for these scores can vary. What matters is how much you’ll be paying for your auto insurance on a monthly or half-yearly basis.
Your Credit Score and Auto Insurance
Although it sounds unfair, people with poor credit scores pay more for auto insurance. Studies have correlated low credit scores with a high amount of insurance claims. The FDIC has also done a number of studies that show the same thing. If you have a low credit score, you can expect to pay higher premiums than people with better credit.
Of course, this is just one factor, as plenty of other things are included in determining your insurance rates, from your credit-based insurance score to your driving record and income level. The lesson learned is to keep your credit scores high so that you can save money on your insurance premiums.
Have Questions? Contact Charlotte Insurance
Wondering if your credit score is affecting your auto insurance premiums? Contact Charlotte Insurance. Our agents can explore and explain all available options with you and put together the auto coverage plan you need.