How Your Credit History Can Cost You on Car Insurance – Get Your Auto Insurance Score

car insurance accident claimAuto insurance scores are finally starting to share some of the limelight with credit scores. Consumers are learning more about what this other credit scoring model is and how it could potentially raise or lower car insurance costs.

So what exactly is an auto insurance score?¬†Here’s the lowdown on how auto insurance scores work, how “fair” are they, and what you should do about yours to improve your situation.

Why Does My Credit Affect How Much I Pay For Auto Insurance?

That’s the question most people wonder about auto insurance scores: how on earth is their credit rating related to their car insurance?

An auto insurance score is calculated from a formula that uses information from your credit history and credit report, similar to a credit score model. The same way that credit scores measure your creditworthiness in the eyes of lenders, your auto insurance score measures your riskiness to insurers and, more specifically, your likelihood to file a claim. Using your credit information plugged into an auto insurance score, insurers will price your auto insurance premiums up or down according to how risky you are. If you’re not familiar with the various factors, here’s what hurts and affects your credit score.

Studies show that there is a correlation between credit behavior and likelihood of filing a claim. Basically, those with better credit tend to file fewer claims, so their insurance is priced down. On the other hand, those with worse credit tend to file more claims and be more expensive to insure, so their insurance is priced up. As you can see, the effects of a bad credit score seeps into everyday life, including your ability to get favorable mortgages, loans, and insurance.

Whether or not this is a fair practice is somewhat of a moot point, unfortunately. The majority of insurers in most states use auto insurance scores to help determine consumers’ insurance rates. The real question is, what should consumers do?

What Can I Do About My Credit and Auto Insurance Rates?

The first step before doing anything about your auto insurance score is simply to know it.

Credit Karma, home of the free credit score, now offers three free credit scores including the Auto Insurance Score. On a range from 150-950, you can view your insurability from poor to high, plus get a brief summary that discusses the impact of your auto insurance score on your insurance rates. It’s insight like this that can shine a little light on your credit situation so you can do something about it.

Now, how do you go about fixing your auto insurance score?

Game Plan for Improving Your Auto Insurance Score

The first step is always to know what’s up with your credit situation, then make a game plan on how to improve your credit if you know what is weighing it down.

Some of the common adverse factors affecting auto insurance scores include:

  1. Oldest credit account has short history – Your oldest account was opened within the last 6 or so years.
  2. Credit history is too recent – A significant percentage of your credit accounts were opened in the last 2 years, and need more established history.
  3. Not enough mix of credit accounts – You need a more diverse mix of credit, that includes credit cards, loans, a mortgage, and more.
  4. Late payments – Late payments of 30 days or more on one or more accounts can seriously damage your credit.

Do you think any of these factors may be contributing to your low auto insurance score or poor credit in general? Check out your own Auto Insurance Score, and the issues that are affecting your insurability. That way, you’ll know how to better your credit health, improve your credit score rating, and save money on car insurance.

Credit Karma is a free credit management service that provides free credit scores, financial education, and personalized savings recommendations. They “help over 2 million consumers realize the everyday cost savings of having a good credit score.”

  • Steve Sildon

    How does CreditKarma make money anyway? If their giving away the credit report or eating the cost, how are they making that back?

  • CreditKarma

    Credit Karma is an ad-supported site; that’s how we are able to provide credit scores, which consumers can update daily, straight from TransUnion credit bureau and absorb all the costs–so its always free to consumers like you.

    We are, and plan to always remain, a free and honest service, because we believe its consumers’ fundamental right to have free access to their credit information.

  • Annon

    Our insurance score is 1901. Is there another charting system?