I was checking out my car insurance rates, and it seems like having bad credit could raise my rates more than something like a DUI. Has anyone else heard about this? How does credit even play into car insurance?
Yeah, it’s crazy, but your credit score can make a huge difference. Insurance companies use something called a ‘credit-based insurance score’ to figure out how risky you are. If you have poor credit, your rates can go up by 61% or more.
@Cedar
Wait, what’s a credit-based insurance score? Is it the same as my normal credit score?
Wade said:
@Cedar
Wait, what’s a credit-based insurance score? Is it the same as my normal credit score?
It’s similar but not exactly the same. Your insurance score uses the same factors like payment history and debt, but it’s more about predicting whether you’ll file an insurance claim, not if you’ll pay back a loan.
@Cedar
Oh, that makes sense. So how much can a bad score really raise your rates?
Orin said:
@Cedar
Oh, that makes sense. So how much can a bad score really raise your rates?
For some people, it can raise rates more than something like a DUI. On average, people with poor credit pay around $3,455 for full coverage, which is $1,307 more than someone with good credit.
Certain states like California and Hawaii don’t let insurers use credit to set rates, but most states still allow it. So it really depends on where you live.
Zadie said:
Certain states like California and Hawaii don’t let insurers use credit to set rates, but most states still allow it. So it really depends on where you live.
Lucky people in those states. I’m in Florida, and my rates went up because of my credit score.
@Tatum
Same in Georgia. It feels unfair that something like credit, which has nothing to do with driving, affects my rates.
What’s worse is that even if you improve your credit, not all insurers will check your score regularly. Some only check when you first sign up, so your rates might not drop until you switch companies.
Shawn said:
What’s worse is that even if you improve your credit, not all insurers will check your score regularly. Some only check when you first sign up, so your rates might not drop until you switch companies.
Good point. I improved my credit and assumed my rates would go down, but they stayed the same. I had to shop around for a better deal.
@Dale
Shopping around is key. Every company weighs credit differently, so you might find a better deal elsewhere, even with bad credit.
If you’re worried about credit affecting your rates, look into usage-based insurance. Companies like Root and Progressive offer policies based on your actual driving behavior instead of just credit or age.
@DeMarcus
How does usage-based insurance work?
They track your driving through a mobile app or a plug-in device in your car. Things like speeding and hard braking affect your rates, so if you’re a careful driver, it could save you money.
@DeMarcus
I might give that a try. I don’t drive much, so it could save me some cash.
Another thing to keep in mind is that you can get your credit report for free every year to check for errors. If there’s a mistake on your report, it could be driving up your rates, and you might be able to get it fixed.
@Blane
Where do I get my credit report?
You can get it from AnnualCreditReport.com, and it’s free once a year from each of the three major bureaus: Equifax, Experian, and TransUnion.
@Blane
Thanks! I didn’t know that. I’ll check mine.