Will My Credit Affect My Car Insurance Rate?

Fran Majidi
March 29, 2019

You’re aware that your credit score matters when you buy a car, rent an apartment or try to take out a mortgage. You thought this mysterious rating was only relevant to really big, juicy purchases until someone told you your car insurance rate is based on your credit score. In fact, most states in the U.S. do use credit as a determining factor, except California, Hawaii and Massachusetts, states that decided it was unethical to use credit score evaluations because they hurt low-income drivers. If you live in any state that uses your credit to determine a rate you should know a thing or two so you are never paying too much for auto insurance. The team at SmartFinancial is always there to help you compare your rates with multiple insurance companies at once so that you can choose which policy and price fit your lifestyle and budget. All you have to do to get started is enter your zip code here.

What Is a Credit Score?

Your credit score is a number that falls between 500 and 900, to determine how stable you are financially, if you pay your bills on-time and if you’ve overextended your credit line. Most insurance companies use credit scores to determine risk. According to their complex algorithms, there seems to be a correlation between low credit rates and the likelihood of filing a claim.

Does The Credit Check the Insurance Companies Pull Hurt My Score?

What the credit check insurance companies do is considered a “soft pull” on your credit score so you neve have to worry about it hurting your credit. Also, it’s not like the companies use FICO, Equifax, Experian or TransUnion. They create their own versions of a credit check based on similar evaluations. Again, the main thing the insurance companies’ credit checks do is try to predict if the consumer is likely to file a claim in the future. People with higher credit scores simply get into far fewer accidents.

Unlike a regular credit check, car insurance also factor in other things along with your credit check. These factors include but are not limited to: job, income history, gender (except in 9 states) and other personal information, like garaging address.

What Are the Factors that Can Hurt My Credit Score?

  • No established credit history
  • Late payments
  • Accounts in collection
  • High amount of debt
  • High number of credit inquiries
  • Foreclosure
  • Bankruptcy
  • Collections and charge-offs
  • Deed in lieu
  • Short sale
  • Debt settlement
  • Refinancing a loan
  • Being an authorized user on someone else’s delinquent account
  • Credit report errors

Can I See What Insurance Companies See on My Credit Report?

Yes, according to The Fair Credit Reporting Act (FCRA) you have a right to get a free copy of your credit report from TransUnion, Experian or Equifax.

What if There’s Incorrect Information on My Credit Report?

You can correct your credit history by writing in to the credit report agency and contesting the incorrect information. Even after you correct the misinformation that may be affecting your rate negatively, it will take a few months for your score to improve.

What Other Factors Affect My Insurance Rate?

  • Driving record
  • Garaging Address
  • Car make/model
  • Mileage
  • Marital status
  • Driving experience
  • Profession
  • Gender
  • Age
  • Age of car

How Can I Improve My Credit Score?

Not only will you lower your car insurance rate by improving your credit score, you’ll have an easier time getting loans from lenders, for small and even larger loans, like a mortgage or business loan. You’ll also get better offers from credit cards at much better rates. Here are some quick tips on improving your overall financial profile:

  1. Pay all your bills on time.
  2. Pay your bills in full or at least the minimum requirement
  3. Pay your student loans on time and in the agreed-upon amount.
  4. Pay down debt by paying back more than the minimum on credit cards.
  5. Add utility, cell phone and even rent to your credit file.
  6. First, take care of factors affecting your score the most.
  7. Open new credit accounts only as needed. This includes store cards.
  8. Leave unused credit cards open.
  9. Dispute mistakes on your credit reports.
  10. Raise your available credit (but don’t use it).
  11. Negotiate with creditor for a adjustments.

How Long Does it Take to Improve a Credit Score?

The amount of time it takes for your credit to bounce back after you make some of the efforts listed above. How much time depends on the reason why you scored low. For instance, if you have a delinquency or collection account, this will be on your record for a while.

  • Delinquencies stay on your credit history for 7 years.
  • Bankruptcies stick around for 10 years.
  • Inquiries about your credit stay on your record for 2 years.

Little Known Facts About Credit

  • You don’t need to carry a balance on a credit card to build credit. You can build credit by paying off your balance in full each month, a good habit to have so you don’t grow your debt!
  • Settling a debt is better than letting it hang there without paying it down. However, sometimes things beyond our control happen (expensive illness, unemployment, disability) and we simply can’t begin to make a dent in the balance. You may be offered a settlement offer by your credit card company (or other lender). While this is not the worst thing you can do, just know that settling for a lesser amount can harm your credit score. It’s still less harmful than not paying a debt at all or declaring bankruptcy. Also, note that you may be required to pay taxes at the end of the year for the portion you were alleviated from paying.
  • More than any other method of credit scores, FICO is widely used. There 29 versions of FICO scores which fall into categories based on the querying industry.
  • You are entitled to a free credit report within 60 days of any adverse action like being denied credit or being given really bad credit terms for a loan (high interest rate).

Whether your state uses credits scores or not -- and whether or not you have a good or bad one -- we’re here to help you connect with an insurance agent who will work hard to find you the lowest auto insurance rates available. Just visit here!

Get a Free Auto Insurance Quote Online Now.

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