Can You Lower Your Car Insurance With a Higher Credit Score?
You probably already know how your credit score can affect interest rates for any mortgages, loans, and credit cards you take out. But what about car insurance? Does having a good credit score lower the premiums you’ll pay for it?
The answer is “mostly yes,” as this article will attempt to explain. In all states except California, Massachusetts, and Hawaii, car insurance companies can use your credit score to determine your likelihood to pay, as well as to judge the risk you pose on the road. And while that may sound good on the surface, it does carry a fair bit of controversy.
How Car Insurance Companies Use Your Credit Score
Many car insurance companies (except in the three states mentioned above) confidently use your credit score to come up with car insurance plans, primarily because multiple studies have shown that individuals with high credit scores tend to get into fewer road accidents than their low-scoring counterparts.
Unfortunately, the “score” these car insurance companies come up with is NOT exactly the credit score determined by FICO. Each individual car insurance company is free to consider any of the 30+ financial factors that make up the FICO score – and is likewise free to leave out any of those factors – in coming up with their own “score.”
And here’s the shady part: These car insurance companies are actually not obliged by law to tell you how they came up with their scores. That means they can put more weight on, say, how diligently you pay your bills, instead of putting more significance on your road safety track record.
On the other hand, most reputable car insurance companies do come up with fairly accurate “scores” to use in working out insurance plans. And the trend is still evident: The higher your credit score, the lower your premiums will be.
So What Should You Do?
So as you can see, the way car insurance companies calculate how much you’ll need to pay each year is controversial at best. But it is how it is, and until things change, the best we can do is to make the most of it. Here’s how to make sure you find the best possible rates for your car insurance policy:
#1: Keep your credit score up. Keep a tab on your credit score, correct any mistakes you may find on your credit history, pay your bills on time, and use only 30% of your available credit. Remember, the higher your FICO score, the more you’ll save on car insurance premiums – even if there’s no way to tell exactly how much.
#2: Drive safely. Obey traffic rules, avoid getting into accidents, keep your papers up-to-date, and avoid whatever leads you to road rage. Car insurance companies WILL look into your road safety record when coming up with your policy.
#3: Shop around. Get quotes from as many reputable car insurance companies as you can afford to. While we can’t find out HOW they come up with their policies, we CAN compare prices.