Is Your Auto Insurance Cost Affected By Your Credit Score?

“Can you tell me how to get to the Holiday Inn?”

“Sure. You want to stay on this road for about $6.00 worth, then turn right at the

stop sign, go about $1.25, then keep to your left and you will be there in about $3.15.”

Like employing defensive driving strategies behind the wheel in order to avoid collisions,

nowadays, we also have to be concerned about how our finances can affect our auto

insurance rates.

Consider this: missing a single credit card payment could increase the cost of insuring your car, due to the widespread use of an

insurance scoring model that considers policyholders’ credit histories.

Yes, your credit score matters.

Human Behavior and a Credit Score

You may believe that your borrowing behavior may appear unrelated to the risk of

something bad happening to your vehicle.

The insurance industry, however, says that a credit history can be used to help predict the likelihood of a policyholder eventually filing a

claim and costing the insurer money.

As a result, insurers are increasingly relying on credit-based insurance scores — calculated using information from

policyholders’ credit reports — when providing insurance coverage.

These credit-based insurance scores share similarities with traditional credit scores

used by banks and other lenders, including the types of information they consider in

order to gauge risk.

But they also have some important differences.

Insurance scores are designed to predict insurance losses; credit scores predict the likelihood of delinquency or nonpaying of

credit obligations.

While some of the same factors or characteristics are used to develop a credit-based insurance score, not all of the credit

information is used.

Insurance scores have been in use for more than 20 years, but have experienced a recent

surge in popularity.

Today, the use of credit-based scores is

widespread.

FICO, creator of the leading financial scoring model that bears its name, says that roughly 95 percent of all auto insurance policies are awarded today based to some degree, on

credit-based insurance scores.

What Factors Into Your Insurance Credit Score?

• Outstanding debt

• Length of credit history

• Late payments

• Collections and bankruptcies

• New applications for credit

These factors, along with more traditional factors like age, gender and claims data, are

used to determine insurance rates for drivers.

So for everyone who drives a leased car, on credit-card gas, to a mortgaged home, to enjoy their

favorite show on a financed big screen TV, for the lowest auto insurance premiums possible, and a

good credit score, remember to keep your payments UP and your accident claim rate DOWN.