Estimating auto insurance considering credit

Published: September 28, 2015

Updated: May 15, 2018

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When estimating your auto insurance you are obviously trying to weigh up all the potential costs in a bid to get the best possible deal. However, while most consumers consider things such as previous claims, age, location, and other auto insurance tropes, many simply forget about their own credit rating.

It’s an interesting anomaly because consumers are well versed in understanding their credit score for other purchases, but sometimes ignore it when considering insurance. Like other situations in the finance and retail sector, insurance providers take into account your credit rating. That means if you have a bad credit score you could be denied auto insurance, but the opposite is true and your credit rating can also help you save money on coverage.

Research has found that drivers with excellent records but poor credit ratings pay more for their premiums than drivers with poor record but excellent credit ratings. Some regions are not allowed to use credit as a criteria for auto insurance, but where it is allowed it is clear that credit is used as a very important factor for providers.

It has been found that a bad credit rating can increase your auto insurance premium by over 75% on average, while a DUI conviction on a driving record increases premiums by 35% on average. Indeed, the typical maximum premium for a DUI conviction sits at around 74% more than a normal policy, which is still lower than the average hike for drivers with bad credit.

Even if your credit is considered average, with Consumer Reports in the USA finding a premium rise between 28% and 37%. This shows that only excellent credit scores are likely to get you a good auto insurance deal, so if you have a normal or bad credit rating, what can you do?

FICO, a consumer credit specialist in the U.S., says the following things can help you keep your credit score down.

  • Pay all your loans and credit card bills on time. Payment history is the most heavily weighted element of a FICO insurance score, accounting for 40% of it. Pay at least the minimum due on credit cards every month. Late payments and accounts sent to collections hurt your score, as do financial judgments against you, bankruptcies and wage attachments. The number and amounts of past-due obligations are considered as well as how late the payments are. Basically, the later the payments, and the more you owe past the due dates, the lower your score.
  • Keep credit card balances low. How much you owe relative to your credit limits is the second-most important factor FICO considers, accounting for 30% of your insurance score. If you’ve spent close to your credit card limits, make reducing debt a priority. Watch your spending and pay off as much as you can each month to bring down the balances.
  • Open new credit accounts sparingly. Opening too many accounts can hurt your score. That means you might save more in the long run by declining a new retail credit card offer, for instance, even if filling out the application means an immediate discount at the cash register. The pursuit of new credit accounts for 10% of your score.