How Your Credit Score Affects Your Car Insurance Rates

Insurance companies use your credit score along with a list of more than a dozen other factors to determine what your car insurance premiums will be. A high credit score will result in lower insurance costs because your level of risk, known as an insurance risk score, is lower. Credit scores are not as important to insurance companies as they are to lenders, and the primary credit information looked at by insurance companies pertains to stability and regularity rather than to the amount and frequency of your borrowing.

For insurance companies, your credit score is a reflection of your financial responsibility, and that is the basis of all insurance. Just as maintaining a clean driver record will net discounts for being a good driver, maintaining a higher credit score makes the individual eligible for lower premiums and interest rates with insurance companies and lenders. Pay credit cards and loans on time demonstrates that you are able to manage a budget and handle your own affairs, an indication that your driving behavior will also be more controlled and aware.

Other important factors in determining your car insurance premiums include your level of education, where you work and live, and even such things as your age, gender and marital status. These factors can be combined to form an overall picture of your regular behavior and risks, and provide the company with statistical insight into your level of responsibility. Male drivers will always pose a slightly higher risk than female ones, and the ages of 25 to 60 are considered the optimum insurable ages, not just for auto insurance, but for life and health coverage as well. Being married indicates a level of stability of future thinking that reduces insurable risks and suggests certain more stable behaviors, such as not staying out partying at night, and purchasing the family home. In this way, it is easy to see how your credit score and insurance risk are related, as most people are expected to gain value and financial responsibility as they grow older.

A low credit score will not disqualify you for car insurance, but it may cause you to pay slightly higher rates. Anyone who is allowed by law to own a vehicle is allowed to purchase insurance regardless of what their credit history looks like, or whether or not they are single or married. The score is used as only a single factor among many to develop a statistical analysis of how well you can be expected to maintain your insurance, and how much of a risk you may be for accidents or other traffic offenses. People who have a history of taking risks are just as likely to be a high risk to insure as well, and that is why so many factors must be examined before your rates are set.