Why does credit score affect car insurance?

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    Jordan Moore
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    #11994
    Team StellarFi
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    Generally, most lenders consider a good FICO® Score as an indication that you are at a lower risk of filing claims, and may offer you relatively lower auto insurance premiums.

    However, having a good credit score does not automatically result in a low insurance rate. Lenders pull your credit report(s) to check specific information like payment history, the length of your credit history, and credit mix.

    Many lenders use the information from your credit reports and run it through their own algorithm which calculates credit-based auto insurance scores. While personal credit scores determine how likely you are to pay your bills on time, credit-based insurance scores help determine how likely you are to file a claim. About 92% of the lenders in America use insurance-based credit scores to determine your insurance rates and even to approve or deny insurance.

    However, this practice has been debated by experts and the calculation of insurance credit scores is banned in a few states including California, Hawaii, Massachusetts, and Michigan. Most of the arguments against the use of either personal or insurance credit scores is that a person’s income or credit history does not influence how good they are as a driver, or how likely they may be to make insurance claims. In some states where credit-based insurance rate calculations are allowed, rejecting an insurance application or claim solely based on the credit score is prohibited. Other factors that insurance companies consider while offering you their insurance rates are: driving history, past claims, location, vehicle type and age.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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