Do I need good credit to get car insurance?
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UPDATED: Jul 14, 2021
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When you apply for auto insurance, there are several different factors taken into account to determine the price you will pay for your policy. Sometimes one of these factors used is your credit score and credit history. If you feel that this or other factors that are out of control or causing you to pay too much for your premium try using an online insurance compare tool. These handy tools an easy way to find out if you are paying too much for auto insurance and to get the best price possible. Compare car insurance rates now by using our FREE tool above!
What Does Credit Have to do with Car Insurance?
In most states, car insurance companies are legally allowed to access your credit report, with your permission, in order to utilize that information in determining what you are auto insurance premium will be.
Not all insurance companies use a credit report when determining the price tag for a premium, but the majority do.
In fact, according to FICO, a large company used by car insurance companies to generate credit-based insurance scores, approximately 95% of car insurance companies and about 85% of homeowners insurance companies utilized credit-based Insurance scores in states where they are legally allowed to.
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The Lower the Credit Score the Higher the Risk
For some drivers, this will come as a surprise. You expect to have your credit checked when you apply for additional lines of credit, a car loan, a new apartment, or mortgage. However, for some people, the status of their credit doesn’t seem to directly correlate with their insurance risk. According to some car insurance companies, there is a correlation between okay and poor credit consumers being more likely to submit car insurance claims. For these companies, if you have poor or simply ok credit you are more of a risk and will likely end up paying more on your auto insurance premium.
Factors that Determine the Price of Your Auto Insurance Policy
The good news is that it is highly unlikely for a driver to be turned down for auto insurance solely based on their credit score. You can still obtain and maintain car insurance with poor credit. You may pay higher rates than your peers, however, poor credit is not a single factor for denial of a car insurance policy. There are many different factors underwriters at a car insurance company will look at to determine if they will ensure someone and weather premium will be. These factors include:
- Age and gender: Older, more experienced drivers tend to be less likely to get into accidents, making them less of a risk for an auto insurance company. Therefore, they usually see lower rates. In addition, men in general, tend to be a higher risk. This is because they are more likely to be risk takers themselves and to be involved in a DUI accident.
- Where you live and where you park your car: Repair costs can vary from one state to the next, which can be reflected in your auto insurance bill. If you live in a more densely populated area or an area that sees a lot of auto thefts or accidents, you will likely pay a higher premium. Car insurance companies also take into account the laws regarding car accident lawsuits in your state when determining your premium. The higher the damage limits a plaintiff can ask for, the more likely you are to see a higher premium. Some areas of the country also have more uninsured or underinsured drivers which can increase the price of premiums as well.
- Marital status: People who are married will usually pay less for their auto policy than single drivers, especially men. In fact, for men who have a good driving history, getting married can sometimes cut their auto insurance rates in half.
- Credit score and history: Though credit score is not as big of a factor as driving history, it is a significant factor when determining the price of your auto insurance premiums. Auto insurance companies look at your credit score, accounts in collections, history of bankruptcies, and other areas of your credit report to help determine your score.
- Profession and how far you drive to work: If you drive frequently for your job, as in the case of a delivery driver or a journalist, you will likely see that reflected in higher auto insurance premiums. However, if you drive infrequently for your job or not at all, you will likely pay less. Paramedics, police officers, nurses, nuns, and drivers in other similar professions are generally less likely to get into car accidents, helping them to see lower premiums. In addition, the longer your commute is to work, the bigger risk you are for an auto insurance company. You can expect to pay more as opposed to someone who has a shorter commute.
- Driving history: Your driving history is the biggest factor when it comes to determining what you will pay for coverage on your vehicle. Claims, accidents, and tickets will all increase the amount that you pay. The longer it has been since you had an accident, received a ticket, or made a claim on your auto insurance policy, the lower your auto insurance premium will be. If your driving history is absolutely terrible, some auto insurance companies may even flat out refuse to insure you at all.
- Type of vehicle you drive: The type of car your drive can impact your auto insurance expenses. For example, some types of cars are more likely to be stolen, some are safer, and some hold up better in the event of an accident. Car insurance companies have all of this information and will use it to help determine what you pay for your premium.
Keep in mind that even a person with excellent credit may be turned down for auto insurance based on their driving history or other factors. Likewise, poor credit is not the end all when it comes to obtaining a car insurance policy or paying a decent rate. All of the aforementioned factors matter when it comes to establishing a price for your auto insurance coverage, however, some companies may place more importance on certain factors than others.
If you believe you are paying too much for your auto insurance premium or are simply having difficulty fitting your premium into your budget, it might be time to shop around.
Shopping around for auto insurance used to be a difficult and time-consuming task. However, now drivers can use the internet and an online car insurance price comparison tool to find the best auto insurance policy for them at a fair and affordable price. Compare auto rates now by entering your zip code in our FREE tool below!