Credit Score and Car Insurance Rates

Why do car insurance companies look at my credit score?

It is a fairly new practice for car insurance companies to use credit scores as a determining factor in your car insurance rate, but it makes sense that they do.  Credit scores are thought of as an indication of your level of financial responsibility.  Credit scores are determined by the amount of debt you have, the amount of debt that is  available to you, and whether or not you pay your bills on time. 

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How does my credit score effect my insurance rate?

If you have a good credit score, your car insurance rate will be lower.  If you have a bad credit score, your insurance rate will be higher. 

For Example

Assume that two people apply for the same insurance policy at the same company.  They drive the same vehicle, are the same age and gender, live in the same area, and have very similar driving histories.  The only difference between the two applicants is their credit score: one has a score of 690 and the other has a score of 500.  The person with the higher credit score will probably receive a better rate on the policy.

The national average credit score is 675.  How does yours compare?

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How Do I Improve My Credit Score?

Start by examining your credit score.  You are entitled to view your credit score once a year for free, so take advantage of that opportunity.  If there are any mistakes on your credit report, be vigilant in your pursuit of removing them.  You’ll also need to develop good financial habits.  Pay your bills on time, and lower the amount of debt you have accumulated.