Do Credit Scores Affect Car Insurance Quotes?
January 30, 2024
Yes and no; it depends upon the state’s insurance laws. However, a recent study showed that there is a correlation between credit scores and auto insurance claims, indicating that those with higher credit scores are less likely to file claims.
As a result, many insurance carriers have started using credit-based insurance scores to determine the rate of premiums, giving those with higher scores more favorable rates. This means, if your credit score is good, you could be paying significantly less for your car insurance coverage in the Sunshine State.
But don't worry, even if your credit score isn't perfect, it's just one of several factors that insurers take into consideration when calculating your premium. And remember, just like with credit scores, there are ways you can improve your overall insurance score, such as improving your payment history over time.
Getting quotes does not impact credit scores...
Good news is getting quotes on auto insurance does not impact your credit score. When car insurance companies check for quotes, they make use of what's known as a "soft pull." Unlike a "hard pull" that is commonly used when applying for mortgages or credit cards, this type of inquiry doesn't affect your credit score. So, simply switching insurance companies or policies won't impact on your credit report.
While a handful of individuals may have perfect insurance scores, remember that your scores are not permanent and can be improved. A key to improving your credit score is punctual payments. It's noteworthy that insurance scores, which can range from 200 to a near-perfect 997, are influenced by factors like payment history, outstanding debt, length of credit history, pursuit of new credit, overall credit mix as well as credit score.
Other Factors for Determining Rates
Auto insurance premiums for drivers with poor credit can vary by hundreds of dollars per month based on their carrier. That’s because different companies view your credit report in different ways. So, a GOOD score from one carrier may be considered a POOR score elsewhere. Generally speaking, using a driver’s creditworthiness appears to be an effective approach for lowering the cost of auto insurance.
Other factors that may affect your auto insurance premiums are your car:
a) your driving habits
b) demographic factors
c) coverage limits and deductibles
d) your age
e) anti-theft features
f) your driving record
Collectively, demographics like age, sex, marital status and location as well as the vehicle you drive, such as a compact, mid-size, or high-performance vehicle affect rates. In addition, your driving history including number of traffic tickets and accident claims and your credit score (whether it is poor, fair, good, or excellent) matter too. Plus, making debt payments on time, using less of your available credit and having multiple accounts in good standing can help you score more competitive quotes.
What is the Fair Credit Reporting Act?
Navigating the Fair Credit Reporting Act (FCRA) can be overwhelming, but it's crucial legislation for how insurance companies use your credit standing. This federal law demands insurers to inform customers about any "adverse action" taken due to credit information. The term "adverse action" can mean several things, from the denial or cancellation of coverage to increased premiums and changes to the terms of coverage.
States like California, Hawaii, Massachusetts, and Michigan, however, have statutes that prevent carriers to freely use your credit scores to determine your insurance rates. Instead, your driving record, location, and other characteristics that influence rates are used for premiums. So, your credit history (or lack thereof) won't affect your ability to obtain or renew a policy or influence how much you pay in premiums for those four states.
The FCRA landscape saw a flurry of legislative activity in 2023 with several federal and state bills being introduced. There was a shift in the regulation of credit reporting based on the Consumer Financial Protection Bureau's interpretive rule encouraging states to regulate credit reporting actively. If passed, several pending bills would grant consumers more control over credit inquiries by requiring customer authorization and verification.
A credit score doesn't measure how financially creditworthy you are. Instead, you credit report is a measure of how risky you are from an auto insurance claim perspective based on creditworthiness. Proposed legislative changes indicate stricter regulation of credit reporting practices in the future by requiring carriers to modify approval practices in compliance with any new federal or state laws.
At Nsurance Nation, our independent agents are licensed insurance professionals who do not work for a particular insurance provider. Similar to a financial advisor, they are trained to look out for your assets, compare coverages, and streamline the shopping experience. Request a quote to find out how to get the best deal possible despite any blemishes to your credit score, demographic variables, or vehicle type.
