How Credit Impact Your Car Insurance – Does Credit Score Affect Car Insurance?

Spread the love

Your Credit score can impact so many things in your life like your ability to get your loan approved, get a mortgage, or even get job employment. Do you know that your Credit Score can make a huge impact on your Car Insurance? Your Credit Score is a big determinant of how much you pay for auto insurance.

How Credit Impact Your Car Insurance - Does Credit Score Affect Car Insurance?

Also, there is a huge difference between drivers with great credit scores and those with poor credit scores. Furthermore, if you have been wondering how your credit score will impact your Auto insurance, in this article we have a comprehendible way to help you understand better.

First and foremost, when you apply for auto insurance, one of the things the auto insurance company does is to check your credit ratings. And if you have a poor credit score, this will indicate that you are living above your means. This will in fact affect whether you can get the coverage.

Why do Insurance Companies Check Your Credit Score?

Also, just like the way auto insurance company check your driving record, your credit ratings is also used to assess your risk as a driver. In fact, most auto insurance companies make use of your credit score to determine your car insurance premiums. But there are other determinants such as driving history, Zip code, car type, and other factors.

But, it is surprising why your credit is a factor used in determining your car insurance premium. A great credit score does not tell if a driver is good. But auto insurance companies’ research points out that most drivers with bad credit are more likely to file for claims or crash. While drivers with great credit scores tend to file for few claims.

What Are Credit-Based Insurance Score?

Many car insurance companies make use of what we call credit-based insurance score to effortlessly recognize risk among policyholders. This factor is used to check if the policyholder can pay for the premium on time or the likely hood of filing for a claim. Generally, it is used to determine the premium that will be charged on a car policy.

Also, a credit-based score is not based on your job or your income history. But, it is based on your payment history and the amount of debt you owe. This is why most insurance companies make use of your credit-based score instead of your credit score.

How do Credit Based Works

Most insurance companies make use of the credit-based insurance score to determine your premium rate. Also, they make use of your driving history, the amount of claims you have filed for previously, and payment history. Reports show that if you have a great credit-based score plus great driving history and zero file claims record then you have a high chance of getting a lower premium rate.  But if you have a low credit-based score and a bad driving history with a series of file claims then you are likely to be riskier to insure.

Although your credit score is different from your credit-based score your credit score is a big determinant on your credit-based score. So you should find possible ways to improve your credit score in order to give your credit-based score a rise. Note that the higher your credit score the higher

Do Insurance Companies Report to Credit Bureaus

Insurance companies do not report to credit bureaus because there are not getting a loan. The three national credit bureaus (Experian, TransUnion, and Equifax) have information about your credit history, repayment history, and credit card payments.

So, when you agree to buy insurance coverage, you agree to the premium payment schedule in your policy, the premium rates are not considered as loans. Therefore, the Insurance companies don’t need to report to the bureaus. But insurers make use of your credit-based insurance score to determine how much premium you are eligible to pay.

Does Poor Credit Impact Car Insurance

It is important to know that your credit score is a key factor in determining your premium rate for car insurance. Also, an excellent credit score is a better chance to get a great rate. While a bad credit score can make you get more expensive coverage.