Why is my credit score used to determine my car insurance rates?
This practice has been going on for a few years now. Insurers use a modified credit score to come up with an insurance credit score which will give your insurance company an indication of the likelihood of someone filing a claim based on this credit score. In other words, the lower your insurance credit score, the more likely you are to file a claim, inflate the amount of the claim and commit fraud. And since you are perceived to be a higher risk based on a low credit score your insurance company can charge you a higher premium.
Find out what your credit score is here.
The better your credit score the better and lower your auto insurance premiums will be.
Your insurance credit score is not the same as your FICO credit score. It doesn't tell the insurance company if you can qualify for a loan or a credit card, it tells them how well you manage that loan or credit card.
So, if you manage your credit well, it stands to reason that you will manage major purchases, such as your home and car, just as well. If you have proven you can handle money well, your insurance credit score will reflect that and your premium will be lower because statistics show that you will handle your car or home well and not file a small claim or numerous claims.
Find out what your credit score is here.
Signup for a free course showing you how to improve your credit score.
UPDATE: Summer 2005 - I just received a renewal packet from Allstate and my rates went up by $130 every six months just due to my insurance credit score! No tickets, no accidents. Just due to too many inquiries and opening up a new account. You would think it would be for new
customers but no, they have started applying this practice for long time customers too. Maybe it's time to start shopping around...
Back to car insurance FAQs