Auto Insurance and Your Credit Rating

How does my credit score affect my car insurance rate?

To take out a loan or credit card with a low interest rate, you probably already know that you need a good credit rating. Your credit score—the three-digit number that indicates your creditworthiness—gets a lot more use than that, though. It can help a landlord decide whether to rent to you, determine whether you have to pay an upfront deposit on utilities, and dictate what kind of cell phone plan you can get.

A credit score can even impact your auto insurance rate. Many insurers use a credit score in conjunction with other factors to calculate an “insurance score,” and this calculation has thought to be a good predictor of insurance claims: Statistically, if you have a low insurance score, you’re more likely to file a claim, and your insurance rates will probably be higher.

Note: Credit-based insurance scores can't be used to determine insurance rates in California, Hawaii, and Massachusetts. 

What credit factors can impact my insurance policy?

Though your credit report informs your insurance score in most states, they’re not the same. Instead, insurance companies will use your credit report to measure how well you manage your money. Your income isn’t a factor. Instead, they look at patterns in how you manage your finances, including:

• Outstanding debt
• Length of credit history
• Late payments
• Collections and bankruptcies
• New applications for credit

Source: Insurance Information Institute, iii.org

Insurance companies usually can’t use an insurance score as the only factor in determining eligibility for insurance. They’re also required to let consumers know they are using credit information when you request a quote.

Will getting a quote affect my credit score?

When a business checks your credit, they can perform a hard or soft query. Credit checks by lenders and creditors are hard inquiries, and they will affect your credit score. 

When you view your credit report, a lender reviews your existing accounts, or a prospective lender prescreens your credit, it is a soft query and does not affect your credit score.

How can I get my insurance score?

You can request your credit-based insurance score report through LexisNexis and dispute any unwarranted entries. Insurance companies aren't permitted to make any adjustments to your score.

In most states, your credit score will most definitely affect how much you pay for your insurance. To keep your rates low, follow practice good financial management: keep your credit balances low and pay your bills on time each month.

Looking for more information about auto insurance and your credit? Contact your local AAA branch to speak to an insurance agent.