Believe it or not, your credit rating can have a major impact on your car insurance rates. Although most of us realize that our credit histories have an impact on whether or not we can get a loan and on how high our interest rates will be, most of us fail to even consider the impact on car insurance rates. In fact, a poor credit history can even make it nearly impossible to get car insurance and it might cause a car insurance company to decide to cancel a policy.

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The Scoring System

More and more, car insurance companies are looking into the credit histories of their current customers as well as of those customers that apply for their coverage. This is because they have discovered that there is a direct correlation between a person’s credit score and his or her likelihood of getting into an accident.

Using a special scoring system, the car insurance companies put their customers into various classifications. These classifications may include high-risk, average, and preferred. Depending on the category you fall in, the rates of your insurance premiums will be impacted.

State Regulations

Depending on the state where you reside, the amount of information the car insurance company can access from your credit report will be limited. In addition, each state has its own regulations regarding how the information insurance companies gather from credit reports can be used.

For the most part, car insurance companies will look at your basic credit information, such as how often you have missed payments, how many times you have filed for bankruptcy, the number of credit cards you have, and how much credit activity you have. All of this information will be plugged into a formula along with other pertinent information. This additional information may include your age, where you live, your gender, how long you have been driving, your accident history, and more.

The formula will assign certain numbers to this information depending on their level of importance. This is based on the loss history the company has experience as well as how important each piece of information is when it comes to accident statistics. Other information, such as the type of car you are covering, will also have an impact on your premium.

Your Rights

You do have the right to ask your insurance company whether or not your credit history was used to determine your rates. In addition, you can ask your car insurance company to explain to you just how important your credit history is when it comes to the impact on your rates.

Regardless of if the car insurance company uses your credit history to help determine your rates, it is important to stay on top of your finances in order to have as good of a credit as possible. In the end, your pocketbook will thank you

 

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