Is Your Credit Score Affecting Your Auto Insurance Quotes?

One of the insurers’ biggest concerns is how to better calculate the risk of a particular policyholder. In fact, they have taken into account several factors such as marital status, profession, and driving record. However, there is one piece of information can affect one’s auto insurance quotes that has raised the question in the public and legislators: credit score.

What is a credit score?

Credit-based insurance score relies on an individual’s credit history to determine the odds that he or she will file a claim. A low credit score may indicate that an individual is a habitual late-payer or does not have an extensive history. There are four pieces of information that attribute to the score:
  • Current total debt.
  • Available credit.
  • History of payment.
It was not until the mid-1990s that credit score was made an official factor contributing to one’s car insurance premium. That was when several insurers shook hand with the company that created the FICO score to conduct a test on whether it is possible to predict a person’s risk if credit score is taken into consideration. The outcome of the test remains unknown to the public but by 2006, almost every insurer takes the score as a variable in their algorithms.  In the same year, a survey was conducted but this time the subjects were policyholders. About two-thirds of them said they had no idea that their credit score could have an impact on their auto insurance quotes.


A few states have taken measures to protect policyholders against the practice. In California, insurers are prohibited from using a person’s creditworthiness to set premium. The same policy can be found in Hawaii and Massachusetts.

While you are here, it is good to know about soft hits and hard hits. The so-called hits are when your insurers rifle through the credit files to find out about your credit history. Soft hits are the inquiries that leave no trace on your record while hard hits can stay on your credit reports. Hard hits are what we have to worry about.

How does credit score affect auto insurance quotes?

Using your credit score to predict your premium is not a straightforward task. Generally, this is how insurers classify scores:
  • From 800 to 850: excellent.
  • From 740 to 799: very good.
  • From 670 to 739: good.
  • From 580 to 669: fair.
  • From 300 to 579: poor.
Consumer Reports found out that the difference between the premium of a person with a “good” score and one with the best score is $214 per year.

How much credit scores affect insurance premium varies among companies. Here a table that compares and contrasts the differences among the three major automobile insurers Allstate, State Farm, and Nationwide:

The table shows that Allstate has the widest gap by about 88% between the poor and the excellent category while this difference at Nationwide is only 56%. If you have an excellent credit score, you will benefit the most from State Farm while a poor score will cause Allstate’s customers a heavy penalty.

How to know if an insurance provider takes credit score into consideration?

If you live in a state where the credit-based system to set premium is outlawed so there is nothing to worry about. But if you do not, chances are thin that your insurers do not count on your credit scores.

A research conducted by WalletHub which looks into how transparent companies are in terms of disclosing information about the use of credit score and again, it depends largely on your providers. Your best chance is to browse the website of the company you would like to sign up with for information regarding this particular issue.

Should you count on Credit Score Exception?

Credit Score Exception is the circumstances which are beyond the policyholders’ control and therefore they can request that insurers do not the score against them when these events happen. The circumstances in question include:
  • Catastrophic events declared by the state or the federal.
  • Losses that cause your home inhabitable.
  • Divorce.
  • The death of spouse, child, or parent.
  • Illness or injury of yours or your family members.
  • Unemployment.

What should you do?

Your credit scores are used to calculate your creditworthiness and it will have an impact on your car loan, house mortgage, and large purchases. So keeping a clean record and a decent score will benefit not only your car insurance premium.

Short-term measures:
  • Pay your bills on time.
  • Pay your small debts.
  • Have a financial plan.
  • Have a saving habit.
  • Request an “extraordinary life circumstances exception” if you fall into one of the aforementioned events.
  • Base on your credit score, shop at the company with the highest reward for a good score or the lowest penalty for a poor score.
  • Use national bank-issued credit cards (AmEx, Discover, MasterCard, and Visa).
  • Long-term steps:
  • Never cross your card’s limit.
  • Paying your credit card and debts before everything else.
  • Do not open too many credit lines as it may encourage you to spend more.
  • If your credit scores change, try to find new quotes.
  • Monitor your credit report regularly; get your free report from annualcreditreport.com.
  • Keep your card balance under your control.
  • Avoid some types of credit such as department store credit, auto parts stores, and finance company credit.

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