Key Takeaways:
- Your rates may easily increase by 70% or more if you have bad credit.
- With the exception of California, Hawaii, Maryland, Massachusetts, and Michigan, all states permit credit checks by insurance companies.
- Whether you switch providers or obtain an insurance quote has no bearing on your credit score.
Unless you reside in Massachusetts, California, Hawaii, Maryland, or Michigan, insurance companies base your rate on your credit score. You will surely pay more for insurance if your credit score is low. Why? Low credit scores are directly associated with a driver’s future risk of submitting an insurance claim, according to insurance firms. Find out more about how your credit score impacts your premium and how to negotiate the lowest price if you have a low credit score.
How is a credit score calculated and what does it mean?
Your credit score, which ranges from 300 to 850 points, is the same as your FICO score. It is an indicator of your propensity to make loan or bill payments. To purchase or rent a home, to lease a car, and for other purposes, you will require strong credit.
Your credit score is derived from points that are assigned based on:
- History of payments: 35%
- Amounts owed: 30%
- Credit history length: 15%
- How many types of credit in use: 10%
- Account inquiries: 10%
Your driving history, age, region, and, in some jurisdictions, gender are just a few of the variables that insurers use when calculating your insurance score, which is determined by your FICO score. The method used by each insurer to calculate an insurance score varies. For this reason, it’s crucial to compare prices when purchasing any kind of insurance. Your credit serves as a risk indicator for insurers, demonstrating to them how well you pay your obligations on time and whether you return loans.
To what extent is your insurance rate influenced by my credit?
Your monthly premium may increase by more than 70% if you have a low credit score. The precise amount you save will vary depending on your insurance provider and your residence. If your credit score isn’t ideal, it’s still worthwhile to compare rates because there aren’t any predetermined guidelines for rating credit scores.
What are some ways to Raise Your Credit Rating?
- Pay any outstanding balances as soon as you can.
- Pay off current accounts that are owed.
- Pay down your debt if it exceeds the quantity of credit you are able to use.
- Open a credit card account and make on-time bill payments if you have no credit history at all or a little credit history.
- Give up applying for credit cards at every store you visit if your credit inquiries are numerous. The savings aren’t worthwhile.
What does this mean for you?
Your car insurance rate may be significantly impacted by your credit score. Numerous auto insurance firms rely their decisions on your credit score when determining whether to accept you as a policyholder and how much your premium will be. Having high credit can save you money, even if it’s just one of several factors that affect your rate.
