Consumer Comeback Blog

Your Insurance Company Wants to Know Your Credit Score

One of the things I notice when I look over my auto insurance policy papers is that there is a little discount in there for my credit score. Since I have good credit, my insurance premium is a little lower than it might otherwise be. If my credit score were to drop, though, I would soon see an increase in my insurance policy premiums. This is because insurance companies are increasingly interested in the way you conduct your financial affairs. Connections are being made between the state of your credit report, and the likelihood that you will get in a car accident.

Poor Credit = Poor Driving Habits?

One of the reasons that auto insurance companies are interested in looking at your credit score is that there is a belief that those who behave irresponsibly with their money may behave irresponsibly behind the wheel of a car. If you have poor credit, insurance companies think, perhaps you will have poor driving habits.

The idea that one’s credit score is an indication of responsibility in other areas of life — especially when money is on the line — is one that is gaining a degree of acceptance. In some cases, your character is being judged by what is in your credit report. If it results in a poor score, many financial service providers (including auto insurance companies) assume that you are generally irresponsible.

What About Extenuating Circumstances?

Critics of the practice of using credit scores to help set auto insurance premiums point out that one’s whole life, and his or her driving habits, can’t really be reduced to a single number. Indeed, just looking at a credit score may not tell the whole story. It doesn’t include unexpected financial setbacks, such as medical bills, and other problems.

Some auto insurers may allow you to explain your poor credit score, allowing you to explain that you are generally responsible, but that something unexpected happened. The information contained in your credit report might be of help in these instances. However, you still might find yourself paying a higher premium, due to your credit score.

Improving Your Credit Score

If you want to reduce your auto insurance premiums, you can improve your credit score. This takes some planning and work, though, and can’t be done over night. You will need to improve your payment history, making sure that all of your bills are paid on time and that you pay the full amount required. Additionally, you should work on paying down your debt, and avoid opening new credit accounts.

With some proper planning, you can begin to see some marked improvement in your credit score within 60 to 90 days. Once you have improved your credit score, you can ask your auto insurance agent about getting a discount for having better credit.

Even though it might not be fair to judge your driving habits based on your credit score, the fact of the matter is that many auto insurance companies do look at your score when setting premiums. If you want to save as much as possible on your auto insurance premiums, you will need to do what you can to improve your credit score.