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How Does Your Credit Score Affect Your Car Insurance Premiums?

How Does Your Credit Score Affect Your Car Insurance Premiums?

Keeping up with your credit score is sensible for all sorts of reasons, and while you might usually check in on it when applying for a loan, it’s also a factor in determining how much you pay for car insurance.

So what’s the reason behind this correlation between credit score and car insurance, and does it matter for motorists nationwide, or are there any exceptions?

The realities of insurance costs

Every insurer uses a range of statistics to determine premium prices, and this applies for car cover, travel insurance, property insurance and much more besides.

A customer’s credit score is just one factor that comes into play where car insurance is concerned, and the reason behind this is simple; people with bad credit scores are statistically more likely to have been involved in auto accidents or have driving convictions on their record than those with good credit scores.

Of course if you drive safely and your personal history behind the wheel is free from any incidents, this will all count in your favor. But even so, bad credit can still leave you paying more for car insurance.

Finding the best value car insurance for you

Even if you do have bad credit, you can cut car insurance costs if you compare quotes using a platform like Cheap Insurance.

You will find that certain insurers have deals that are geared towards customers with bad credit, and indeed plenty of providers don’t actually use this as a factor to calculate premium prices.

So by playing the field and investigating all the insurance products available, you don’t have to be lumbered with a large bill when it’s time to renew your car cover.

Understanding regional differences

Most states, including New York, allow insurers to alter car insurance premiums based on the credit scores of customers.

However, in California and a handful of other places, rules have been put in place to prevent this practice.

Even in New York, there are specific safeguards that insurers have to adhere to if they do factor in credit score when calculating insurance costs. For example, customers must be made aware when their credit score has resulted in a more expensive package being offered.

Likewise, insurers are obliged to check in on any credit score changes and revise premium prices accordingly at least once every three years.

Crucially, for car owners in NY, once you’ve got car insurance with a provider, they are prohibited from either raising the price you pay or ending the policy early on the basis of your credit history.

So if your credit score suffers a setback and you are partway through your insurance period, this won’t hit you in the wallet.

Improving your prospects

If you don’t like the idea of moving to an entirely different state to save on your car insurance, then improving your credit score is your best bet.

Once again, many factors are at play in determining this, and the most important influence is your repayment history.

Missing repayments on personal loans, mortgages and credit cards will hurt your credit score. Conversely, if you hit payment deadlines consistently and don’t drop the ball, you’ll be rewarded with an improved score.

The amount of debt you hold is also relevant, although so long as you are paying down the total, this will actually benefit your score.

Ultimately it’s about showing that you are a responsible person, and this is perhaps the most telling reason why car insurance providers charge more if a customer has a low credit score to their name.

Image Source: Pexels

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