5 Things to Know About How Credit Scores Affect Car Insurance Rates

People with great driving records often hear others describe their low car insurance premiums. It is common for some of these with lower premiums to have less than stellar accident and ticket histories. As one begins to wonder what is going on, it can be a good idea to look in a direction that seems totally unrelated.

Check your credit score.

More and more insurance companies are examining the credit history of new customers before issuing quotes for premiums. While technically, the insurance companies do not use your FICO scores from the credit bureaus, they do use a formula of their own that somewhat resembles these scores. The result is that if your scores are high, your premium rates will be significantly lower.

The insurance companies do not seem to consider why you may have low scores.

When you are applying for a loan at a bank, the bank will usually allow you to give reasons for blemishes on your credit history. These spots can result from disputed bills or any of a number of reasons why you may have chosen not to pay a debt until some problem was cleared up. If your reason for non-payment or being tardy is accepted, you may still get the loan at a decent rate. Insurance companies tend to be much less inclined to want to look at the circumstances instead of just the facts.

Some people get poor credit ratings due to medical problems.

If you or a family member develops a health issue that becomes a major financial problem, it will not only drain your resources today, but it may continue to hurt you for years to come. A new dilemma is on the horizon. You can pay for expensive medical care or buy car insurance. When you can least afford increases in your expenses, the insurance companies will raise your rates as your credit score decreases.

Insurers insist that credit history is a better indicator of risk than driving history.

Apparently, it is believed that if you fall behind in paying your bills, it will make you a bad driver. Because of the high level of discomfort at this concept, some states are moving to pass legislation to prohibit this practice. Until they do get new laws enacted, credit histories will continue to influence car insurance rates in a significant way.

The only way to really protect yourself against high insurance rates is to monitor your credit reports.

Even if you have a good payment history and a reasonable debt load, an error on your credit report can cost you money. The insurance companies will not tell you that your rates are high because of your credit score. Banks and lenders will share the problem if there is one. You may not even realize that your car insurance rates are excessive until you have that conversation with a friend who uses the same company and gets much better rates.