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Credit Score And Insurance Rates

Insurance companies use countless factors to determine your risk and set your rates. Many of these are obvious, such as where you live, your driving record, and what model of car you drive. But there are also a few factors that are less intuitive, like your credit score. Yes, companies use credit score to determine the rates and you can easily notice the price difference, just by using car insurance free quotes.

q7lz8bpenr47gjsnpfr2Credit is considered a rating factor for nearly all US drivers. Insurance companies in California, Massachusetts, and Hawaii are not legally allowed to use credit scores as rating factors per state regulations. In the rest of the US, however, credit can have a profound impact on your auto insurance rates.

Drivers with higher credit scores pay less for auto insurance than drivers with lower credit scores because U.S. auto insurance companies have found a correlation between a driver’s credit score and the likelihood of that driver filing an insurance claim for damages.

Using quotes offered by insurance companies, the following correlations have been found between credit score and insurance rates:

  • Drivers with poor credit (scores of 524 or below) pay more than twice as much for car insurance as those with excellent credit (scores of 823 or above).
  • Drivers can increase their credit scores by one tier (e.g., from poor to fair) to save an average of 17% on their annual auto insurance premiums.
  • Improving your credit score from poor to excellent would yield 53% savings (an average of $1,281 per year).

 

There are ways to take action and improve credit score. First, check your current credit score status. Experts recommend checking your credit report once every four to six months. Regularly review what your credit score is and why. Then, you should make a plan for improving your credit score. This involves developing a savings plan, managing your debt, and monitoring your credit.

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