If you've ever applied for a credit card, leased a car, or taken out a mortgage for a home, you know that credit scores count. You might be surprised to discover that they can also affect your car insurance premiums in the same way they do your driving history, marital status, and payment history. A higher credit score lowers your car insurance rate, often significantly, at almost every insurance company and in most states. However, getting a quote doesn't affect your credit.
Your credit rating is based on your ability to repay the amounts you have borrowed. The insurance score predicts the likelihood that you will be involved in an accident or insurance claim in the future and is based on information collected from policyholders with similar credit characteristics who have had claims with us before. When banks and other lenders determine credit ratings, they may consider your income, work history, and other aspects that could affect your ability to repay a loan. Banks can also deny you a loan based on your credit rating.
We don't consider income or work history, and we won't deny you a policy based on your insurance rating. Get to know our culture and our people Chat now to ask Flo anything or explore the most frequently asked questions. For example, Maryland prohibits auto insurance companies from using credit history to determine if they will insure you, cancel your policy, renew your policy, or increase your premium once the policy is in effect. Insurance companies and data analysis companies from which they purchase information, such as LexisNexis, do not disclose details about how they calculate insurance ratings, but are instead confidential information.
With a difference of 127% between the cheapest and the most expensive, the range of premiums underlines the importance of comparing car insurance prices. Unlike traffic tickets, which normally disappear from your driving record and don't affect rates after three to five years, a bad credit score can continuously affect your car insurance rates. Some states, such as California, Hawaii, Massachusetts, Washington and Michigan, prohibit insurance companies from using credit to determine auto insurance rates. Traffic tickets, accidents, and the car you're driving affect your car insurance rates, but surprisingly for many, so can your credit.
That means it's perfectly fine to get car insurance quotes from lots of different insurers to find the right price for your budget. Insurance companies cite several studies that show that drivers with bad credit are more likely to file claims, meaning that these drivers pose a greater risk to them and it is potentially more expensive to insure them. However, auto insurance companies rely on research that shows that credit-based insurance ratings are a good indicator of whether a driver will file claims. Some states, including California, Hawaii, Washington, Massachusetts and Michigan, strictly limit or completely prohibit the use of credit information by insurance companies to determine auto insurance rates.
Auto insurance companies can, and often do, consider your credit history or use a credit-based insurance score before offering you coverage. Insurance companies don't use your credit score (such as your FICO score), but they do calculate an insurance rating. Bad credit doesn't define it, it's just one aspect of the whole package that auto insurance companies look at. If you wait until the next renewal period to compare prices, be sure to ask your current car insurance company to check your credit, as some only check for changes every few years if you're a long-term customer.