Does Your Credit Score Affect Your Auto Insurance Rates?

Your credit score is a number value that assists lenders in estimating whether you are able to make your credit payments on time. A score is based on your borrowing and payment history recorded in your credit report.

Why Are Credit Scores Important?

Credit scores impact whether you are able to obtain credit as well as what you pay for credit cards, auto loans, auto insurance and other forms of credit-related service. For most credit scores, a higher score ranking means you are likely to be approved for credit and you may benefit by being able to pay a relatively low interest rates or - in the case of car or truck insurance - lower automotive insurance premiums.

Do you want to buy a car or truck on credit and obtain insurance for it? Without good scores, your application for whatever service you have applied may be turned away.

Having superior credit scores makes dealings in your finances a lot easier and may even save you money - even in lower car and truck insurance rates. This is why credit scores are crucial to your financial health.

Does Your Credit Score Affect Your Auto Insurance Rates?

In simple terms, the answer is "yes".

As with any other lender or service provider, car and truck insurance agencies rely your credit score to determine what level of risk you entail if they offer you auto insurance coverage.

Two prevalent factors seem to be driving the heavy reliance on credit ranking for determining auto insurance rates. The first of which is the increasing transparency offered by collaborative credit agencies who disclose your credit rankings during authorized credit inquiries. Now more than ever, auto insurance companies poll these credit bureaus for your credit score ranking as a way to help determine your auto insurance rate.

Another major factor in using credit rankings for determining your auto insurance rate is the overall condition of the economy. In the wake of the global financial meltdown, car and truck insurance policy buyers that were once reliable customers may have been hit by hard financial times. As a result of this, auto insurance companies are seeking a "hard and fast" method by which to rank the risk of keeping existing and taking on certain new customers.

Is This Fair Practice?

Whether this practice is fair is up for debate. Luckily for consumers, state lawmakers in Florida, Connecticut, and Michigan are seeing the correlation of credit rankings and auto insurance rates as an unfair burden to car and truck insurance policy holders, and are taking steps to reduce or limit auto insurance rates.

Likewise, keeping a clean and "incident free" driving record also has a significant positive impact on your auto insurance rates. When securing new auto insurance, or reviewing your current auto insurance policy, be certain to discuss your driving record and make sure you take advantage of all discounts for which you may be eligible.

Sources:

Your Credit Scores, Consumer Federation of America
Should Credit Scores Affect Your Auto Insurance Rates?, BestCashCow.com
CT bill would cut auto insurers' reliance on credit scores, Credit.com
Sink Targets Role of Credit in Rates, TBO.com