Credit Report Use in Auto Insurance

Auto insurance companies use a number of factors to determine car insurance rates. Car insurance rates fluctuate depending on your age, the type of car you drive, and your driving record. Many auto insurance companies also factor your credit record into their auto insurance calculations. Based on these factors, insurance companies decide if an insurance applicant receives preferred, standard, or high-risk insurance rates.

 

Car insurance rates can vary widely between different auto insurance companies. Comparing insurance quotes from several different companies can save you hundreds of dollars in annual payments.

Auto insurance companies pay very close attention to your driving history. Car insurance rates will rise if you have a history of moving violations or if you've been responsible for accidents. If you have too many accidents or violations on your driving history, auto insurance companies classify you as a risky driver. This classification results in very expensive car insurance rates. Many auto insurance companies will simply refuse to insure a high-risk driver. If you're married, your spouse's driving history also affects your car insurance rates.

 

A clear driving history makes you a much safer risk for auto insurance companies. You can receive auto insurance discounts for driving safely.

Age and gender also influence auto insurance companies. Car insurance rates are higher for men under the age of 25, as this group historically has more accidents than older men or women of the same age. A male driver who is younger than 25 may pay two to three times the auto insurance of older men.

 

Your marital status may influence car insurance rates. All other factors being equal, married couples usually enjoy lower car insurance rates that single people in the same age group.

Are you driving a 10-year-old station wagon or a brand new convertible? Car insurance rates can fluctuate drastically depending on the year, make and model of your vehicle. Some vehicles are considered low profile: they are less likely to be stolen than other cars, and auto insurance companies are willing to offer lower car insurance rates to their drivers. If your vehicle is on the top 10 list of commonly stolen car models, expect to pay higher auto insurance.

 

Auto insurance companies also look at the maintenance costs of your vehicle. Parts for some cars are more expensive than for others, and therefore repair costs are higher in the event of a crash. Auto insurance companies charge higher car insurance rates to such cars.

Rural drivers have lower incidences of car theft or vandalism than urban drivers, so their car insurance rates are often lower. If you use your car for business, or have high annual mileage rates, auto insurance companies will increase car insurance rates, reasoning that the more time you spend on the road, the greater the chances you will be involved in an accident.

Almost 90 percent of auto insurance companies now consider your credit report when determining your car insurance rates. A good credit report will lower your car insurance rates, while a poor credit report may result in higher rates, or in insurance companies denying your application.

Most people find it hard to understand why your credit report should have anything to do with your car insurance rate. Auto insurance companies point to poor credit ratings as evidence of personal carelessness and inattention to detail, and assume the individual will display the same carelessness when driving.

 

Auto insurance companies back up this claim with statistics: People with good credit reports tend to make fewer auto insurance claims than people with poor credit reports. Additionally, a good credit report suggests a person is more likely to make car insurance payments on time.

Credit reports are only one factor used to determine car insurance rates. Individuals with long histories of insurance claims and poor credit histories may be viewed as too risky to insure. Car insurance companies look at three aspects of a credit report. The amount of debt you owe, your past payment history, and how long you have had a credit history may all affect your auto insurance rates. The types of credit you use and recent credit applications are also considered.

Some consumer rights groups object to using a credit report to predict the likelihood of future insurance claims. Concern has been expressed that the system may discriminate against people with historically poor credit reports, including ethnic minorities, disabled people, and people with low income. Car insurance companies deny this claim, pointing to studies that low income applicants receive insurance risk scores compatible with higher income groups.