There used to be a time when auto insurance carriers did not consider your credit score when quoting auto insurance rates. Though for the past 20 years or so, it has become common practice for insurance carriers to pull your credit score as part of the evaluation for providing an auto insurance quote. If you have ever wondered why you are not alone. Many have asked the question, why does credit score affect the cost of auto insurance? Here is a brief look into credit scoring and why it affects what you pay.
Credit Score in a Nutshell
A credit score is an indicator of your financial wellbeing that falls somewhere between 500 and 900. Financial institutions and companies use this number to determine how likely you are to repay your debts based on past credit history, among other factors. When creditors look at your credit score, they’re assessing whether you are a low-risk or high-risk borrower. A low-risk borrower is someone who most likely would repay their loans, while a high-risk borrower is someone who most likely will be unable to repay their loans on time. Traditionally, high-risk borrowers are charged higher interest rates because creditors are taking on a greater risk of losing their money.
Credit Scoring and Auto Insurance
A car insurance carrier considers many factors when evaluating the risk of insuring a new customer that can include: age, gender, location, vehicle type, marital status, accident history, driving record, annual mileage and credit score. Insurance companies have found a statistical correlation between credit score and how likely a driver is to file a claim. They have found that those with poor credit scores are more likely to file a claim than one with the good or better rating. Insurance companies also perceive that having a low credit score could be an indication that the person has missed payments or has the habit of making late payments on credit accounts and thus believe that they are more likely to follow this pattern.
In essence, insurance carriers think that a good score reflects a customer’s ability to make on-time payments as well as maintain safe driving habits which can lead to fewer claims in the future. Because there is a lower risk of claims, the customer is more likely to receive a discounted rate.
Need Insurance Options? Equinox Can Help
Equinox represents a wide variety of insurance carriers which helps us to offer many options for our customers. As an insurance agency, we don’t set the pricing, claims procedures, underwriting guidelines or discounts. Each insurance company we work with establishes their own rates and rules for doing business with them. Equinox works as a trusted advisor on behalf of our customers to match them up with the insurance company that best suits their needs in terms of coverage, pricing and service. Regardless of your credit score, driving history or other factors, we are here to help you find the best available insurance options for your needs and budget.
Complete the form below to request an insurance quote.