Auto Insurance and Your Credit

Before getting new insurance, it is a good idea to find out exactly where you stand as far as your credit is concerned, in order to secure the type of coverage that is right and reasonably priced.

This page:

  • Describes the relationship between credit and premiums

  • Explains what factors make up your credit score

  • Provides further information about high risk insurance

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What is the insurance credit score?

Insurers use a credit score, based on information contained in your credit repost, to assess the likelihood that you will file an insurance claim in the future.

Auto insurance companies use this information in part to establish rates.

It may not seem fair, but insurers base several assumptions on your past repayment history. Because these are not factual assumption (whether or not you paid your Visa last month isn't going to make you crash next week) insurers instead use a scoring model to determine the likelihood of a claim.

Under such a scoring model, based on historical data or all drivers, insurance companies try to guess whether or not someone who didn't pay their Visa will in fact crash next week. Apparently it works for them.

The above is a gross over simplification of the process, but the principle holds.

You should know that there are movements in many states that seek to disallow these types of practices. However, until then, you are better off being informed about your credit situation.

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After you get your credit report or credit score from ConsumerInfo, you may find out that you rank somewhat low as compared to other people.

We know, it sounds bad, and you may be forced to seek high risk auto insurance. This type of insurance is generally more expensive, and can be harder to obtain.

However, our providers are really good at giving you the lowest quote possible for your circumstances. Often, your credit will not affect your rates - it all depends on your insurer.

How your credit score is determined.

Using statistical programs, all your credit information is compared to the performance of consumers with profiles similar to yours.

A credit scoring system awards or subtracts points for various factors or variables in the credit report to determine the score. The following information is considered:

  • your personal payment history
  • the amount of money you owe now
  • the length of your credit history
  • whether you have any new credit or debt
  • the mix of credit types you use

The score predicts the likelihood of certain events occurring. (Like an insurance claim.)

Although this may strike many as being somewhat unfair (ourselves included) it is the way that insurance companies work, and there isn't much that can be done about it. Being informed is the only recourse consumers have.

The best way to review your credit is to order a three-in-one credit report.

This will allow you to see the report that is on file in your name at each of the three credit reporting agencies (Equifax, Experian and TransUnion).

In addition, you will be given a credit score based on the information in each report. These scores will be accompanied by written explanations, detailing the information used to compute each particular score.


Get a free credit report, or see your credit score now.

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