Is My Credit the Only Factor in Determining My Auto Insurance Premiums?

Working in the insurance industry I get asked this question almost on a daily basis – does my credit score affect my insurance premiums? The answer is yes.


Now before you get all stressed out and assume you’re never going to be able to afford a car payment and the insurance on it, just wait a minute. Let me go through the rating factors that most insurance companies use when calculating insurance premiums for individuals.

Before I started listing some of the things that actuaries look at, let me tell you if you try to figure out the method to their madness – you can’t. There are hundreds and hundreds of hours spent calculating facts and numbers, and a normal person like you or I can’t even fathom why one thing does this, and another does that. All I can do is give you the key factors to what may be driving up your auto insurance premiums, so you can better understand (and hopefully be able to make some changes to save) on your auto insurance.

Driving Record. First and foremost for most likely the rest of eternity, the major factor in determining your car insurance rates is your driving record. You can have the best credit score in the country, but if your driving record needs to be looked at on two pages – well, you get the picture. Insurance companies have to calculate risk, and the more tickets and incidents you’re involved in, the more of a risk you are.

Age/Sex/Marital Status. Call them sexist, or ageist but actuaries are able to determine (generally speaking) that a certain age, certain sex, and a certain marital status are better risks than the other. Unfortunately the younger you are, and the older you are – the bigger risk you are at getting into an accident. Female drivers tend to be more cautious than their male counterparts, and married people tend to be a bit more responsible when it comes to driving, and paying their bills. You very well may not fit into these categories like a glove, but most will.

Area You Live In. So it might not be all you – it could be everyone around you. Insurance companies keep tabs on accident rates, and claims in all areas, usually by zip code. Depending on where you live, can affect the rates of your insurance policy. Bigger cities with more traffic equal more accidents which equal higher insurance premiums. Smaller cities, less traffic tend to be a bit lower (though this can be the opposite when it comes to home insurance, but well talk about that later). The more claims people turn in also in your area can determine your rates – one city may have a lot of vandalism and theft claims, which means your vehicle is more likely to be vandalized or stolen than a few cities over. I’ve actually had clients who have moved from one side of town to the other – less than 5 minutes from each other – and their rates change drastically (up or down!)

Type of Vehicle You Own. Believe it or not, that big SUV isn’t necessarily going to cost more than that basic sedan sitting in the car dealership lot. I’ve seen vehicles like a Ford Focus cost more than a GMC Acadia. Of course all kinds of factors contribute to this, but vehicles made with plastic fenders and bumpers, or that don’t hold up well is crash testing will always be a bit more expensive. My suggestion when you are shopping for a vehicle -ALWAYS CALL YOUR INSURANCE COMPANY TO CHECK YOUR AUTO INSURANCE RATE BEFORE SIGNING ANY PAPERS TO PURCHASE A NEW VEHICLE> That was all in caps because it’s THAT important. I’ve seen people nearly ruined financially because they assumed that their auto insurance premium would be the same as their old car, or a car that was more expensive. SO NOT TRUE, so please be sure to call.

Multiple Cars & Multiple Policies. I am sometimes amazed at how many people have their auto insurance at another company than they have their home – or their motorcycles, or life insurance. The more you carry with one company, the more you will save. Plain and simple. I know this isn’t necessarily a rating factor per se, but it does make a big difference.

Continuous Previous Insurance. Some people think if you didn’t own a car, you don’t need to carry insurance – WRONG! Most states require when you get your license that you agree to carry insurance no matter if you own a car or not (insurance when not owning a car is called a bond) if you didn’t carry insurance, or let it lapse, this will be held against you. Responsible people don’t allow their insurance to lapse – that’s just how the actuaries look at it. Yes on occasion there is circumstances that cause people to lose their insurance (loss of job, etc) but overall never let it your insurance lapse! Even better? Stay with the same company – don’t be an insurance hopper. The more loyalty you show to an insurance company, the more loyalty they show to you.
Yes, Your Credit. We don’t call it credit – in our agency we call it your Insurance Financial Score – because they don’t just look at your credit score alone. It’s a complicated algorithm that gives you a IFS number based on your credit score. In my agency it’s 1 through 50 – 1 being the best, 50 being the worst. There are many reasons they look at your credit to determine your rates – just like a bank does when giving you a loan: for example it helps determine those who are more likely to let their policy lapse, or who might turn in a claim. If you have good credit, not a ton of debt you will be more likely to pay your insurance premiums, and less likely to turn in a claim that isn’t a catastrophe. Like I said before, not everyone fits into this mold – but the facts and numbers don’t lie, which is why they use it. Besides working on your driving habits and making sure that MVR is clear, working on your credit is the 2nd most helpful way to lower your auto insurance rates.


This article was sponsored in part by  Brown-Daub FIAT.

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