Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate drivers about...

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Reviewed by Laura Walker
Licensed Agent for 10 Years

UPDATED: Apr 16, 2019

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Your credit score is a number generated by one of three major bureaus: Equifax, Experian, and TransUnion. Each number may be slightly different, but all are scored on a scale ranging from 300 to 900.

The higher the score the better risk you are for extending credit.

Use our FREE quote tool to compare auto insurance rates today!

What is a Credit Score?

Credit scores are generated upon request by these agencies, and may be affected by many factors. The more open accounts you have, the more delinquent payments, and the longer the periods of delinquency, the lower your score will be.

On the other hand, if you pay your bills on time and do not run your credit cards up to their maximum limit, your score will be higher. There are credit agencies dedicated to helping you strategically manage your credit score and monitor it for unauthorized activity.

Why do credit scores affect the cost of auto insurance?

For many years, your credit score had no bearing on your car insurance rates.

However, auto insurance companies began to find that people with good credit scores not only paid their premiums more regularly but had fewer traffic violations and accidents.

This is not to suggest that a person with a poor credit score is automatically a bad driver; rather, actuarial figures show that higher credit scores relate mathematically to better driving.

It is the same logic that is used to charge higher rates to younger and older drivers, who statistically are more likely to be involved in an accident.

The result of this was for auto insurance companies to begin checking credit scores before offering car insurance to prospective customers, or to base rates on credit information.

Is the use of credit reports unfair?

Some people argue that this is unfair. By doing this, auto insurance companies are, in effect, punishing people who already have financial problems by raising their rates.

Others who support this practice argue that it provides good incentive for people to clean up their credit behavior in order to secure lower insurance rates.

State governments have had mixed reactions to this practices. Some states allow companies selling insurance in their cities to use credit scores as a basis for determining rates; others do not.

However, just because a state allows credit scores to be used in this way does not mean that a particular insurance company will choose to do so. No state requires credit scores to be used in any way to determine car insurance rates.

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How can you improve your credit score?

If you have poor credit, there are several things you can do to lower in your insurance rates. First, you can review your credit report by asking your bank or financial advisor to request your credit report. You can also get a copy yourself by contacting the credit bureaus.

Once you have your credit report in hand, review it carefully with the help of someone who can interpret the scores, or educate yourself by reading articles available on many websites to help you understand your score.

When you identify particular problems, such as high debt-to-limit ratios, see what you can do to remedy the situation. For example, if you are carrying three small cards with low limits which are “maxed out,” it may make sense to combine them into one larger card with a low interest rate that allows you to pay the debt down quickly.

Take advantage of introductory offers which may charge no interest for a period of time; everything you pay will go to reducing your debt. If you have any money available for extra payments, focus on the high-limit debts first, as these are a big factor in your credit score.

You can also explore “silent” areas of money to pay off debts appearing on your credit report, such as loans from family members who do not report to the credit agencies.

Of course, you should make your payments on time. Delinquent payments hurt your score, especially if they are more than 30 days overdue.

Talk to your creditors about a new payment plan if you cannot afford the minimum; most creditors are very willing to work with you rather than write the loss off.

Another thing you can do is shop for auto insurance rates and try to find a company that does not use credit scores as a basis for its fees. This may save you significant money until you can improve your credit score, at which time you can shop all companies for a good rate.

In order to find a list of which companies operating in your state use credit scores as a basis for determining premiums, you can contact your state insurance commissioner and ask for this information.

You can also determine if your state is one of the ones which prohibits using credit scores for this purpose at all.

Use our FREE quote tool to compare auto insurance rates today!

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  1. Do auto insurance companies check credit?
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