Credit Rating and Its Effect on Your Auto Insurance

There are a number of factors that can affect your auto insurance cost including your age, sex and prior accident history. It may surprise you to learn, however, that in recent years, credit rating has also become an important factor in determining your premium. While credit rating will not always come into play and the rules for using a credit rating as a determinant will vary from state to state, the Federal Trade Commission has found that credit rating is a useful guideline for setting premiums.

Why Does Credit Rating Affect Auto Insurance Cost?

A credit rating is an assessment of your credit risk compiled by credit reporting agencies. It is based on your past credit history, which includes how many credit cards and loans you have had and how diligent you are with payments. It is generally understood that most people who are responsible with their credit and finances will be responsible in other aspects of their life. Someone with good credit is motivated to minimize risk, and someone who tends to minimize risk is less likely to get into a car accident, which furthermore means they are not as likely to file a claim. Since those who are not as likely to file a claim are more desirable to auto insurance companies, these people are likely to get more favorable rates.

How Does Credit Rating Affect Your Auto Insurance Cost?

If you are in a state where credit rating is a factor in determining auto insurance rates, you can expect that a credit score of 700 or above can affect your insurance rate policy positively, whereas a rating of 600 or below may affect it negatively. Remember that if credit rating is a factor, it is only one of several factors, and how strongly it is weighted will depend on the insurance company you are using.

How Can You Use Credit Rating to Get Better Auto Insurance Rates?

Simply put; improve your credit rating. You can find out your credit rating from any of the three credit reporting agencies. If your score is in the unfavorable range, or not quite in the favorable range, try to put off purchasing auto insurance until you can pay down a few loans. The better you are with making significant, regular payments on your loans and credit cards, the higher your credit rating is likely to go. Since your auto insurance premium is something you will be paying regularly for a long time, it's usually worth it to make the effort needed to improve your credit rating in order to get that favorable premium.