Car insurance companies use many variables when determining your car insurance rate. Age, gender, location and yes, credit score can all be used to calculate the amount an insurance carrier is going to charge you to protect your car and property.
Not all states allow this practice however. In Massachusetts for instance, insurance rates are heavily regulated and monitored and insurance companies are not allowed to use credit history, income, occupation, marital status and home ownership status when calculating your personal auto insurance rate.
Insurers use your financial history to help quantify the risk they may be taking on if they offer you a policy. Many studies have been undertaken which have concluded that there does exist a relationship between your financial history and your insurance claim potential.
What Kinds of Information Will They See in My Credit History?
Your credit history tells a lot about how you handle your financial life. It can show a car insurance company how well you have or have not met your payment obligations to retailers, banks and mortgage companies.
Also shown on your credit history will be any foreclosures, collections or bankruptcies. In addition, credit score companies keep track of the number of times your credit history has been requested recently, usually for the past two years.
When you apply for auto insurance, the company may look at data from your credit report such how much outstanding debt you owe, how often you were late on payments owed, how long of a credit history you have and how often you have applied for new credit recently.
What If I Have a Poor Credit History?
The best remedies for poor credit are time and moderation. If you have poor credit now, you may see higher rates. However, as you continue to pay your debts on-time and limit the amount of credit you have outstanding, you will see a reduction in your rate. Once an auto insurance company sees that you are fulfilling your obligations and continue to do so, they will be more willing to cover you for less money. Essentially, you will be less risky in their eyes.
If you are currently insured and you have bad credit, it may be wise to stick with your current company. Most insurance companies use credit rating as part of their underwriting criteria now and switching companies may just lead to higher auto insurance rates.
Also, be sure to take a look at your own credit history report. Often there are mistakes on these reports and you don’t want to be paying higher rates for someone else’s mistake.