Does Your Credit Impact Whether You Get Cheap Insurance?

You may have heard that insurance companies now use credit reports in part to determine your rates. You wonder why your credit makes a difference and how much impact your credit score could have on your monthly car insurance premiums. This is an important concept to understand to help you get the best deals on insurance quotes.

Good Credit Means Good Rates

In most cases, when insurance companies factor in your credit, your score is factored into your rates. People with the best credit will get the lowest rates. If you have what is considered bad credit, you will likely pay more for the same amount of insurance coverage.

The reason behind using credit scores is that experts in the industry have done studies that show people with lower credit scores are more likely to file claims. It doesn't mean they are less responsible or that they intend to commit insurance fraud. What it does mean is that companies will have to pay out more often if their policyholder has a lower credit score.

Not every state allows insurance companies to check a person's credit for car insurance. You will know if it is factored in because the insurance company will have to provide notice that they are checking your credit.

Work on Your Credit

Bad credit right now doesn't mean you will be paying high rates forever. You can find cheap insurance once your credit improves. Some insurance companies check your credit once a year while others only check when a customer is signing up for a new policy. If you have worked on your credit history and seen it improve, it would be worthwhile to ask your insurance agent to re-evaluate your rates.

Rebuilding credit often takes time if you have had problems in the past. However, you can save money if you're willing to put in the work to boost your credit score. So, what does that mean you have to do?

Credit ratings are formed from specific pieces of information:

    » Payment history – if you pay your bills on time

    » Amount of credit that you have vs. the amount you use

    » Length of credit history

    » Types of credit

The two first pieces of information have the biggest impact. Even one late payment can cause your credit score to drop by 40-100 points. In just a short time, you can go from having excellent or good credit to having fair or even poor credit.

Before you shop around for cheap insurance, you should take a look at your credit. Ask for a free credit report from to see what information is included. Make sure all items are accurate and notice if any negative information is included. In general, the older information has less impact than new accounts. As the bad stuff ages and new information is added that is positive, you will see your credit rating improve. This will help your insurance rates to go down.

Credit is just one aspect of your profile that impacts car insurance. While credit score alone doesn't completely determine how much you will pay for your policy, it can make a difference. Work on your credit to make it the best it can be and then shop around for reduced rates to get cheap insurance that fits with your budget.

Insurance With the Right Car

Next to your own personal record, the car you choose has the biggest impact on your insurance costs. Cheap insurance is possible if you select the right vehicle. Some common myths may prevent you from getting the best deal.