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Do car insurance companies check credit scores?

Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella...

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Reviewed byDaniel Walker
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UPDATED: Mar 19, 2020

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Here's what you need to know...
  • Your credit score is used to determine the likelihood you’ll pay back your debts
  • In addition, insurance providers may use this score to predict if you’ll file a claim
  • This score is called an insurance risk score, and may be a factor in determining your risk as a driver
  • Each insurance provider pulls different pieces from credit reporting agencies to create this score
  • This score is not tied to or affected by your driving record

Your credit score is a snapshot of how responsible you are when it comes to paying back loans and outstanding debts. Insurance providers may review your credit scores when determining your risk and may calculate an insurance risk score based on these scores.

Although each insurer is different, many take your credit score and this insurance risk score into account when deciding to issue a policy or not.

Start comparison shopping today by entering your zip code into our FREE tool above!

What is an insurance risk score?

AdobeStock_53464240-1600x1600Your insurance risk score is a three digit number that insurance providers use to predict how likely it is that you’ll file a claim. While this score may seem similar to a credit score, it is actually a combination of numerous factors that each provider pulls to assess your risk.

This score may be compiled from different credit reporting companies as well, meaning each provider may pull different factors to create this risk score.

Auto insurance providers have reviewed studies over the years that show correlations between someone’s credit history and the likelihood of being involved in an accident. Although this is only one factor in determining your risk as a driver, it is not affected by factors like your driving record, age, gender, or income bracket.

How can an insurance risk score affect your rates?

Many providers will take your insurance risk score into their underwriting when they write the policy and determine the rates. While there is legislation in some states that may prevent your provider from basing your premiums solely on your credit score, this legislation doesn’t prohibit them from using it as a major factor in assessing your risk.

Insurance providers want to provide coverage to low-risk drivers, meaning drivers that are likely to drive safely, avoid accidents, and act responsibly overall. By taking your insurance risk score into account when issuing your policy, your provider is attempting to determine the amount of risk they are assuming by issuing you a policy.

While your insurance provider may use the insurance risk score when determining your risk, they are not obligated to share the score or the determining factors with you.

Additionally, if your credit score changes suddenly, it could result in premium changes or a cancellation notice from your provider.

Is it fair to use credit scores when determining risk?

AdobeStock_40258869-1600x1600Insurance providers in some states are not allowed to use credit scores when it comes to setting premium prices. In these states, insurance premiums are based on factors like driving record, miles driven annually, previous claim history, and other criteria. In these situations, drivers with average credit scores typically save more annually.

While credit scores do provide a snapshot of your creditworthiness, they can contribute to higher premiums for drivers that do not have excellent credit.

The reason for this is that the insurance provider may be charging you for accidents and claims that you have not had and may never have.

Conversely, this results in less of an increase in the future if you are involved in an accident. Higher premiums for drivers that are involved in an accident are often a deterrent for future accidents. Insurance providers that raise your premiums up front for potential future accidents may not raise your scores as high in the event of an actual accident.

What factors influence my car insurance rates?

Your credit score is one of the several factors your insurance provider may use to determine your risk — which helps predict whether you will file a claim. Due to this, your credit score can affect your policy terms and your premium amount.

If you have questions about the use of your credit score in determining your insurance rates, start by contacting your insurance provider.

They should provide you information on how your risk is assessed, though they may not provide you specifics. In addition, your state’s Department of Insurance can provide additional guidance on any state specific legislation regarding what providers can and cannot do.

Make sure you shop around to make sure you have the best coverage for the right price. Enter your zip code below to get started!

References:
  1. https://www.credit.com/credit-reports/credit-and-car-insurance/
  2. https://blog.creditkarma.com/credit-101/insurance-scores/whats-up-with-my-auto-insurance-score/
  3. http://www.consumerreports.org/cro/car-insurance/credit-scores-affect-auto-insurance-rates/index.htm
  4. http://www.consumerreports.org/cro/car-insurance/credit-scores-affect-auto-insurance-rates/index.htm
  5. http://www.naic.org/state_web_map.htm

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