Reader question:
How come your credit score affects your car insurance score?
Virginia
Great question.
It doesn’t make a lot of sense, does it? After all, although you do have a set yearly premium with car insurance companies, they are not the sort of business that you have an unbreakable payment contract with. If you don’t pay your premium on time, then it’s over. You’re uninsured, but you don’t owe anyone any money, and it doesn’t go on your credit report. So why should the two be related? For years, people just explained it away, saying that people with bad credit were just bad customers in general. More likely to be unreliable in their payments, they weren’t the steady sort of clientele that the car insurance business needed.
And credit scores do have a big effect on your auto insurance rating. The surprising thing is that they have any even greater effect than an actual accident would! If you started out with good credit, a good driving record, of a good age, and so on, and got into an accident, your premium would go up by a couple hundred dollars. That’s frustrating enough, but what would happen if your credit dropped down to the lowest rating? You’re looking at a premium spike of almost a thousand dollars, just because of your credit ratings.
Even if you have credit that would make a mortgage loan company happy, you might still be looking at higher premiums because of it, simply because car insurance companies look at credit reports in different ways than lenders do. Opening a lot of credit accounts in a short period of time,even if everything on your report is in good standing, could send your premium up. Every company was these reports differently, though, so you would do well to shop around if you don’t get in well with a certain company.
Cheers,
Fashun Guadarrama.