Will My Credit Rating Affect My Insurance Rates?

If you are in the market for auto insurance you are probably considering your past or other factors that may affect the rate that you are offered by the many insurers out there. Of course you realize that your past driving record such as accidents or tickets, will affect the price that you are offered insurance at, but what about your credit score and credit rating? Most insurance companies will ask you for your social security number when building a quote for your insurance premiums - surely they aren’t using that information to see how much social security benefit you’ve built up over your life time, so what do they need it for?

Your Credit Rating Tells Underwriters a Lot

Insurance underwriters are tasked with the job of determining how significant a risk is to their company and basing premiums and deposits on that risk in order to try to make money for the insurance company. In light of this, they have taken to looking at a potential customer’s credit rating in order to determine the rates that should be charged whenever possible.

Whether or not an insurance company can use your credit rating to help determine the rate that you must pay for auto insurance is determined by state law. In some states it is not allowed in which case your credit score may not even be pulled. On the other hand, most states do allow this practice which means that having a poor credit rating can increase your insurance rates significantly. Why? Because it has been statistically proven that people with lower credit ratings are more likely to file claims than those who have high credit scores. Those people whose credit reports show a history of late payments, defaults, collections and maybe a bankruptcy or two are likely to be insurance clients who are late on their payments or wind up having to have their account canceled for nonpayment of premiums. It’s an unfortunate truth, but yet another reason to listen to your mother when she tells you to take good care of your credit.

Potential Effects On Your Insurance

So your credit rating can affect your insurance rates, driving them up or down, but there are other ways in which your credit rating may affect your insurance policy. Premium payment options may also be affected by your credit ratings. Certain insurance companies offer advantages to their customers who pay in advance or use a direct-debit option in order to pay their premiums, but for those customers with their credit in a bind, these advantages may not exist. Not only that but paying your bill through an automatic withdrawal from a bank account may be the only option to convince the insurance company to work with you.