Smart Auto Insurance Blog

It’s becoming common knowledge that having a good credit score will save you money on your auto insurance rates, but it’s unclear exactly how much it will save you.  Based on a recent CarInsurance.com study, drivers with credit ratings over 750 save about $783 a year on their auto insurance quotes when compared with a typical driver in the same age group with average credit scores.  The study used 42,809 auto insurance quotes to determine this figure and the results are surprising.

If you calculate this out over a lifetime of driving, a person with excellent credit can save approximately $22,815 on their auto insurance premiums.  Credit is only one factor out of many that insurers use to calculate quotes but it’s becoming increasingly important.  Auto insurance companies strongly defend their use of the score despite many consumers finding it unfair.  Insurers have found a direct correlation between someone’s credit rating and the chances of them filing a claim.  Regardless of the reasoning behind this connection, there is a connection and it makes sense for insurers to use this information.

The good news is that you have control over your credit score.  Even if you have filed bankruptcy or charged off some accounts, you can repair your credit through time and bill management.  It’s important to keep your credit card debt down and make all of your payments on time.  It may take a few years, but once your credit score has improved you can start to compare auto insurance quotes and hopefully see a difference in the rates you receive.

Most car insurance companies, including Progressive and American Commerce, have their own calculation for determining car insurance quotes.  You may feel like the rate you end up paying is out of your control but that isn’t necessarily the case.  There are numerous factors insurers use that are within your control and knowing what they are can help you save money.

The biggest factor is often driving record, and although you cannot do anything about the past, you can control your future driving habits and wait until previous driving violations fall of your records, which they eventually do.  You can have a clean slate with a little patience and careful driving practices.  Another big one these days is credit rating.  Again, the past is the past, but derogatory marks fall off your file in about 7 years, and focusing on paying your bills on time and keeping your debt levels down will pay off in the long run.

Of course what type of car you drive is going to have a huge impact on your car insurance quotes.  In general, the more expensive the car the higher your quotes will be.  Take a serious look at how big of a car you need, and how important luxury really is considering the overall costs.  Not only will that actual car cost more money, but maintenance and insurance will be higher.  The extra money can add up to a lot over the years.

And make sure you are shopping around for the best rate.  Just because one car insurance company gives you a hefty price, doesn’t mean they all will.  Get at least 3-4 quotes, if not more, and compare any trends you may see.  You’ll also want to make sure your coverage is sufficient and meets your needs.

It is becoming more widely known that many auto insurance companies use the credit score when calculating auto insurance quotes for those shopping around.  Whether you agree with it or not, insurers have found that credit history is a powerful predictor of what kind of driver you are.

According to the article “Does Getting An Auto Insurance Quote Hurt Your Credit Score” by DR on Doughroller.com, Progressive has data to show that consumers with the worst scores are often twice as likely to have an accident or file a claim compared to consumers with the best scores.  But a question that has been on the minds of many credit conscious consumers is how does it affect your credit score when you get auto insurance quotes from an insurer?

The answer is that it affects your score minimally.  Auto insurers are using what’s called “a soft pull” when they look at your file.  This is a way for people to look at your credit file without it affecting your score.  When you get pre-approved offers, are interviewing for jobs, or look at your own credit score these are all using “soft pulls”.  A “hard pull” is used when you are shopping for credit and it can negatively affect your score.  This is often known as a “voluntary pull” and it affects your score because seeking excessive credit is viewed as a risk factor.

According to the article “Credit Scoring Is Hurting Customers” found on sacbee.com from The Dallas Morning News, even if you are a responsible driver you may end up paying higher car insurance rates if you have blemishes on your credit file.  Whether or not this is fair is currently a huge debate.

The Dallas Morning News analyzed the insurance industry and found that people with poor credit paid 35% more on home and car insurance.  In certain cases, the insurance rates were more than double people with good credit, even if they had similar claim history.  This just goes to show how crucial it is to stay on top of your credit score.

Auto insurance companies believe that using credit as a risk factor helps to identify higher risk customers.  They cite The University of Texas research that shows drivers with lower credit ratings file more claims with their insurers.  They say that if it weren’t for the credit rating factor everyone would pay higher rates.  Credit scoring is no where near an exact science and can often hurt good customers. 

As you are shopping around for car insurance quotes try to identify if your credit may be affecting your premiums.

According to the article “Credit Scores Studied As Factor” by the Freepress Staff on Freep.com, the Michigan Supreme Court listened to arguments on October 7th about auto insurance companies using a customer’s credit score when considering their home and auto insurance rates.

Using the credit score was outlawed by the state back in 2005, but the insurance companies will be allowed to use the score as a risk factor pending the outcome of their lawsuit currently in the Supreme Court.  Most insurance companies offering Michigan auto insurance are to offer some sort of discount on premiums with use of a credit score.

Lawyers representing the insurance industry told justices that Linda Watters, the former Insurance Commissioner, overstepped her boundaries when she banned discounts based on good credit ratings.  Attorney Peter Ellsworth believes that insurance scores do not work and states that 60% of policyholders will pay higher costs if the court allows the ban of the credit score.

According to the article “Lower Score? You Will Pay More” by Richard Burnett on sun-sentinel.com, auto insurance companies can increase auto insurance rates upwards of 50% if a policyholder’s credit score drops.

The article states that government regulators and consumer groups are trying to get the auto insurance industry to stop using the credit score as a factor in determining auto insurance quotes.  Credit scores have dropped as the economy struggles and banks tighten their lending qualifications making scores drop further.  TransUnion is one of the three big credit reporting agencies and they found that consumers in Florida and other large states have seen drops in their credit scores by about 10% and this will in turn affect Florida auto insurance quotes.

The insurance companies want to continue to use the credit score as a factor.  They claim if they stop using the credit score when calculating rates, premiums could rise by as much as 70%.  The credit score is only one of many factors used to determine a rate but the credit score actually carries more weight than your driving record.

Georgia auto insurance companies such as State Farm are charging lower auto insurance rates to drivers with better credit ratings, WALB News’ Jim Wallace reports. With these ratings, the higher the better. Insurers believe that lower credit ratings correlate with a higher likelihood of filing auto accident claims. A motorist’s credit rating plays a large part in calculating the insurance score that determines the premiums they charge. (Other factors include your driving record and demographic characteristics like age, location, and marital status.) Unfortunately, the perceived greater risk results in more expensive auto insurance for those with bad credit.

If your credit is good, Jim says that this is the perfect time to take advantage of the competition in the state’s car insurance market. Otherwise, try to improve your credit rating before shopping around for auto insurance quotes. You could save hundreds of dollars per year!

(Photo credit: History.com)

The state Attorney General has proposed a law that would prevent Connecticut auto insurance companies from charging different rates to drivers based on their credit rating or where they live. Steve Kobak of The Hour writes that rates are especially excessive in urban areas, where residents are more likely to earn lower incomes. According to Att. General Richard Blumenthal, denying auto insurance to customers based on their credit ratings is absurd and will result in a vicious economic cycle. If that practice is not banned, there will probably be more uninsured drivers on the road, causing greater risk and higher auto insurance premiums for all.

Rates for car insurance in Connecticut are already among the most expensive in the nation, says Steve, and cost even more in Fairfield County compared to the rest of the state. The act was recently introduced in the state legislature.

According to Jeannine Koranda of the Wichita Eagle, a bill pending in the state legislature would prevent Kansas auto insurance companies from charging different premiums to drivers with different credit ratings. Senate Bill 24 is currently waiting for a hearing in the Financial Institutions and Insurance Committee.

The bill has sponsors from both political parties, whom believe that auto insurance rates should be based primarily on a person’s driving record. Senator Oletha Faust-Goudeau also believes that using credit ratings to determine premiums has a disproportionate impact on lower socioeconomic levels: they tend to have lower credit ratings, and therefore pay more for their car insurance. This bill could change that, and lower rates for most Kansas drivers.