By June 12, 2007 0 Comments Read More →

Auto insurance credit score.

Reader Question:

Me and my friend, Mike, are almost completely the same from the outside. We’re the same age, both married with two kids, live in the suburbs and drive new SUVs, have good driving histories, blah blah blah. But I pay way more on my car insurance than Mike and I can’t figure out why. What’s the difference? Is there some kind of score that I did badly? Do insurance companies just randomly apply different prices to people? Why does Mike get cheap car insurance and I’m left behind?


Great question, Griffin.

It’s easy to see why you could be concerned about something like that. A lot of times, it seems that insurance rates really are random, when you look around at people who are so similar to you but who are paying so much more or less. The truth is, though, that the days when things like age, gender, driving record, and location are the sole factors that go towards your insurance rate quote are over. Nowadays, so many things are factored in that it’s very difficult to say exactly why one person might pay more than the other. With so many factors, the possibilities are endless.

There is one thing that does have a fairly universal effect, though, in determining your auto insurance score–your credit. I know. It doesn’t make a lot of sense, but it’s true. People with good credit ratings almost always have lower insurance rates, and people with low credit ratings almost always have higher rates. This is why someone who is over 25, drives responsibly, has always had insurance and has a good driving record can still end up being charged high prices for insurance.

People with good credit scores pay up to 48% less than everybody else when it comes to insurance. According to the insurance companies, statistics show that people who prove responsible with their credit also are responsible on the road. That’s why your credit score can be such a big factor in your insurance quote.

Using credit to determine insurance rates is still a pretty controversial issue. In some states, there is lots of opposition and the ratings are being challenged in the courtroom. It could be that this will result in credit scores being removed as a valid way to decide a quote on insurance rates, or it could remain a valid way of grouping the population into higher and lower risk insurance groups, for the same reasons that younger people pay more than older and men more than women. For the time being, though, it is a factor, and should be taken into consideration when comparing your rates to the neighbor’s.

Just because your rates may be raised due to your credit score doesn’t mean there aren’t other ways to lower your monthly payments. Always shop around and compare quotes from different companies. Take advantage of discounts. Your base quote is not the be all and end all.

Hope it helps,

Fashun Guadarrama.

Posted in: Auto Insurance

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