What Is an Auto Insurance Score?

Your credit doesn’t only impact your ability to borrow money. Your credit can also determine how much you pay for other products and services, like utilities, rent and even insurance. What you pay for auto insurance may be partially based on your credit history. Here are the basics of auto insurance scores and the impact your credit has on your rates:

Do car insurance companies check your credit?

Many car insurance companies will check your credit when you apply for coverage. After providing the necessary information to the insurance provider, you may receive a credit-based insurance score . Just like your credit score is based on your potential risk of missing a payment, your credit-based insurance score is used to help companies determine how likely it is you’ll file a claim and pay your insurance premiums on time.

Credit-based insurance scores are not used by all insurers. And according to the National Association of Insurance Commissioners, there are even some states that have banned or limited credit-based scores from being used to determine rates for policy holders. Those states currently include California, Hawaii, Maryland, Michigan and Massachusetts.

How does your credit score affect car insurance?

Your credit score is often used to determine your eligibility when applying for a loan, like credit cards, auto loans and mortgages. If your insurer is using a credit-based score, then your credit score may impact how much you pay for your auto insurance policy.

There are multiple credit score models, though the influential credit score factors that make up those models tend to overlap. Credit scores from two of the most popular credit score companies, VantageScore® and FICO®, range from 300 – 850.

A credit-based insurance score is somewhat different. If an insurer is using a credit-based insurance score, it means that information from your credit report will be used to determine your credit-based insurance score. Your insurance score can shape whether they extend you coverage and may impact how much you pay. Typically, the better your credit score, the better your insurance score.

Insurers may have their own models, so your insurance score can vary from company to company. The ranges for insurance scores can go below and beyond the 300 – 850 credit score range you’re used to seeing. For example, a TransUnion credit-based auto insurance score ranges from 300 – 900.

How much you pay for auto insurance may not be solely dependent on your credit-based insurance score. There are other variables that determine your rate, such as your age, the vehicle you drive, and your driving history. If you have any questions regarding your policy or the insurance score you received, contact your insurer. Even though they’re not directly correlated, if you have healthy credit, your credit-based insurance score should reflect that. To be better prepared while shopping for auto insurance, you can get your credit reports for free each week from annualcreditreport.com.

How to lower your auto insurance rate

Unfortunately, you can’t control all the factors that determine your auto insurance rate. Where you live may impact how much you pay for insurance, but it’s usually not worth moving to just to improve your insurance rate. And you can’t change your age or your previous driving history. Though you may be able to modify a few things to lower your policy rate.

Driving safely to improve your driving record may help lower your premiums. Also, you can increase the deductibles on your policy. While this could lower your monthly cost, if you have an accident, you will have to pay more out of pocket, so you need to be financially prepared should an incident occur.

Similarly, you could reduce your overall coverage. Again, this is something that should be considered only if you can cover sudden out-of-pocket expenses. If you’re financing or leasing a car, you may be required to have a certain level of coverage, but if you own your car or have an older car, you may feel you’re over-insured and could drop or lower some of your coverage. You can contact your insurance agent to discuss whether you’re carrying the right level of coverage.

If your credit history is used in part to determine your premiums, you can work to build a better credit history. Understanding the important credit score factors is important to building a healthy credit score. Two important factors are your payment history and credit utilization. Making all payments on time and keeping your balances as low as possible will help to improve your credit over time. Another thing to consider is requesting to raise your credit limit on your credit cards. Raising your credit limit could also benefit your credit utilization. Though, you should know that if you request a credit limit increase, the bank may analyze your credit report information before making an approval decision, which could trigger a hard inquiry to be placed on your credit report. Hard inquiries can temporarily lower your credit score.

Before making a major purchase on credit or shopping around for new insurance, consider limiting new applications for credit, since hard inquiries can temporarily impact your credit score. Also, be cautious about closing longstanding credit accounts. Part of your credit score is calculated based on the average age of your accounts. Closing accounts with a long history could negatively impact your credit score.

How much you’ll save on auto insurance with a good credit score will depend on your insurer. Even if your insurer doesn’t use a credit-based score, improving your credit is certainly worthwhile, as you’ll benefit from better rates and terms on future credit opportunities. If your credit isn’t where you want it to be, our blog post How to Rebuild Credit can get you on the right track.