Car Insurance and a Credit Score: Does Your Credit Affect Your Rate?

It’s one of the great question marks of adulthood: How much does a credit score matter? Is it really such a big deal? When should a young adult start building credit, so his score passes muster when he needs to apply for a mortgage or a car loan?

Credit scores are complicated, and yours will make a difference in all sorts of big life decisions. When it comes to car insurance and a credit score, the two have more in common than you might think.

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Your Car Insurance and Your Credit Score Walk Into a Bar…

First off, let’s define a credit score. Yours is based on a number of factors, including your payment history, the length of your credit history, the number of credit cards and loans you have, and how much money you owe on each account.

Most people who are going to run your credit score are looking for your FICO score. It’s a number between 300 and 850 that grades your fiscal responsibility.

Why Does My Auto Insurance Care about my Credit Score?

Just like a loan officer or the leasing agent at an apartment complex, your insurance agent wants to know how good you are at paying your bills on time. A high credit score lets them know you’re reliable, while a low score might indicate you tend to pay your bills late or have large amounts of debt.

Why Should I Choose Credit-Based Car Insurance over Non-Credit-Based Car Insurance?

If you’re shopping around for car insurance, it’s a good idea to get quotes from credit- and non-credit-based insurance plans. The age of your car, its reliability, and mileage will all affect your car insurance quote. But a good credit score may prompt an insurance agent for a credit-based plan to offer you a lower rate than a competitor.

Insurance agencies like reliable clients. They also appreciate clients who are less likely to get into accidents. A 2007 study by the Federal Trade Commission found that people with high credit scores have fewer automobile accidents.

If you are worried about your car insurance and credit score, there are still options out there. Non-credit based car insurance may be more expensive, but you can always take out a non-credit based policy while you build your credit score.

How Do I Know What My Score Is?

The three major credit reporting agencies allow you to request your full credit report and score once a year for free.

Your report will list your entire credit history, including paid and unpaid debts. If you want to stay on top of your score, request that report every year and keep an eye out for any rogue entries — even a $3.00 unpaid late fee due to your electricity company can drag your score down if it’s handed to a collection company.

Hit the Road!

With a good credit score, you won’t have to worry about the expense of a car insurance payment keeping you from driving into the sunset.

Check out our blog for even more info on finances, car insurance, and your credit score!