You may think that your credit score is only important for determining loan and credit card interest rates. However, your credit score plays a role in a number of other financial transactions and these include getting an auto insurance policy.
Why it’s important
Although there is little independent research to confirm it, most insurers believe (and say they have evidence to support) the fact that people with lower credit scores are more likely to be involved in accidents and file claims. It`s possible that people with low credit scores are less responsible or more prone to making bad decisions.
Whatever the reason, if you have a low score, it`s likely to affect the rate you pay for car insurance, because more than 90 percent of all auto insurers use your credit score as part of their decision on whether they insure you and how much they charge.
How it’s used
How your credit score figures into the equation and what weight it is given varies from insurer to insurer. Some insurers simply get a copy of your FICO score and use that. Others ask for a separate insurance score from the credit bureaus. Still others use their own proprietary systems that use credit score along with some other variables to come up with an insurance score.
Keep in mind that credit score is only one part of the equation. Insurance companies take many variables into account when assessing the risk of insuring you. Other factors that will carry as much weight as your credit score include your driving record, your history of claims, whether you have taken any driver safety courses, what kind of car you drive and where you live.
Although it`s possible that a poor credit score could outweigh these factors, most insurers are going to put more stock in things that directly relate to insurance.
What you can do
If you have a low credit score, there are some actions you can take to quickly raise it. Pull a copy of your credit report to make sure all the information is accurate. A past-due account that you paid could still be listed as past due, for instance, which would erroneously lower your score. Paying down your debt levels and bringing current any past-due accounts will raise your score within a matter of months, if not weeks.
Make sure to shop around if your credit score is low. Since insurers have different systems and may weigh scores differently, you might get three wildly different insurance quotes from three different insurers.
If the rest of your insurance credentials are stellar, for example, if you have a perfect driving record and drive a car with a high safety rating, you should be able to find an insurer that will overlook your low credit score.
If you drive a performance vehicle, your insurance rates are probably already high anyway. If you want to talk about your performance car and share tips and information with other owners, check out www.torquecars.com.