Is Car Insurance Affected by Credit Score?

Your credit score indicates your financial stability, as well as your likelihood of your getting a new loan or credit card. In the insurance industry however, credit score determines whether or not one can get car insurance.

It is still unknown to what degree the credit score is important in the determination of a policy’s premium, but insurers do study one’s credit score to determine the risk factor association with a potential customer.

What is a credit score?

A credit score is a number that is based on a person’s financial history. Credit score therefore depends on:

1. History of debt and bill payments on time

2. Credit available

3. Total debt

To get approval for loans and insurance policies, you need to have a high credit score. Having a high credit score helps in getting loan approval. You can even get lower interest rates!

Financial companies like banks and sometimes your independent lenders provide information about your financial activities with them

Car insurance premium and credit score

Let us now come to the subject of car insurance premium and its direct relation with credit score. Before giving you any money as loan, lenders and financial institutions take your credit score into account. If the score is too low, you will get neither loans nor insurance. If your score is high, there is a high likelihood of your getting them. This happens because lenders calculate the risk you pose, or don’t, to the company. Thus, they check your credit score and even enquire at the concerned credit bureau. 

Do you have a low credit score? 

It can be due to:

1. Not having an extensive track record or an extensive credit history enough to determine a positive creditworthiness.

2. Having a poor credit history from not paying dues and bills on time.

Car insurance companies also make soft enquiries on your credit score. Such soft enquiries do not damage your credit score in any way, nor has a negative impact on your credit history.

Insurance companies use your credit report to find your insurance score, depending on which they decide to give or not give loans. The insurance score is the measure of risk associated with giving your loans.

Factors which affect insurance rates

It is essential to understand at this point that your credit history is not the only thing that is studied before you get a car insurance policy. Other factors are:

1. Your driving record

2. Make and model of the car

3. Car’s registration area

4. Car’s safety features

5. Car’s use

6. Car’s engine capacity

7. Discounts you qualify for

All this means that if you have a good driving record and have anti-theft devices installed, you can get a good car insurance plan regardless of your credit score. In this case, your credit score may be poor, but you may still get the car insurance. 

If you have a low credit score, take time to improve it. It does take time. That way, you can get better premium rates.

And remember, shop around a bit before picking a car insurance plan.