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Understand Your Credit Score and Your Car Insurance Rate

Do you understand your credit score and your car insurance rate? This time of year is often regarded as the car-buying season. The new models are headed to the dealerships, some teens and college-aged students have saved enough for their down payment, reconditioned used cars are readily available, and maybe your present car is ready to die. With the excitement of test driving different models, remember your “new” car will need to be insured, in every state but New Hampshire!

The relationship between your credit score and your car insurance rate…

Rest assured your credit score does affect your car insurance premiums; except if you live in California, Hawaii, or Massachusetts. So, 94% of our states allow insurance companies to include one’s credit score in their rating factors when computing risk analysis.

Before we explore a bit more on the importance of your credit score, let’s consider other elements that can be factored-in when underwriting your automobile insurance rate:

  • Gender
  • Year, make and model of your car
  • Your age
  • Car usage – business or pleasure
  • Annual mileage
  • Marital status
  • Driving experience
  • Driving record: traffic tickets, auto accidents, and claims. (Factors for your insurance score, which are added to your credit score)
  • Where you live and where you park the vehicle
  • What coverage you are seeking
  • Do you qualify for a multi-policy discount, i.e., bundling your homeowners/renters policy, umbrella policy with your automobile policy

WalletHub’s 2017 Car Insurance & Credit Score Report

In 2013, the personal finance website WalletHub was launched. While the company was first designed as a personal finance social network, they are now also recognized for their research reports and surveys. Earlier this summer WalletHub published their 2017 Auto Insurance Credit Score Report. Many news outlets reviewed the report and published articles for their readers. The Insurance Information Institute (III) offered the following observation:

“The findings are nothing new. The use of credit-based insurance scores is a common business practice in the insurance industry that benefits most consumers by saving them money. Numerous studies by federal and state regulators, universities, independent auditors and insurance companies have shown that an individual’s credit history is a proven, accurate indicator of how likely that person is to file a future claim and the potential cost of that claim. Furthermore, a moderate-to-strong credit history may offset underwriting factors, such as a poor driving record or number of miles driven, thereby improving the availability and affordability of insurance for more consumers…The use of credit-based insurance scores varies widely among insurers.”

What is perhaps new is that consumers are able to learn about how their credit scores can impact their insurance premiums; therefore, they can be proactive in learning how to improve their credit score.

Steps to take to improve your credit score…

Here are just a few steps that you can take to understand your score and how to improve it:

  1. Educate yourself. The credit score model was created in 1950 by the Fair Isaac Corporation (FICO) and it is still the primary method for determining creditworthiness.
  2. Be aware, prospective employers and landlords will also consider your credit score.
  3. Pay your bills on time
  4. Don’t skip payments, stay in touch with your creditors
  5. Don’t obtain more credit than you need
  6. Keep your credit card debt in check and try to pay the bills in full each month
  7. Know your credit score and keep an eye on your credit record
  8. If you see any errors, ask for these to be corrected
  9. Understand if you are denied credit due to your credit history, prospective creditors are obliged to notify you. This gives you an opportunity to discuss or dispute any part of the record.
  10. Be patient, often it takes time to improve your score by being diligent in reaching your goal.

Reach out to your insurance broker…

Sometimes when people get bad news about their credit score or the premium for their automobile insurance, they avoid asking questions or seeking assistance. This is human nature. It is important to understand that often life events, such as job loss, death of spouse, hospital bills and even recessions can impact one’s credit score.

Since 1946 John Bailey Company has offered the residents in the Knoxville and East Tennessee region comprehensive auto insurance policies. We are an independent agency and can shop eight (8) “A Rated” auto insurance companies for our clients. Contact us and we can discuss ways to best assist you.

Question or Comment?

Got a question or a comment? Drop us a line, and we’ll get back with you shortly. Dial (865) 524-0785, or use this form: