How Credit Scores Affect the Price of Car Insurance

Perusing a dealership car lot and finally finding an automobile that fits your needs can be a great feeling, but your work is not done yet. Before you start picking out your driving cap and gloves, take a hard look at your finances. Having enough money put away in savings can help you make car loan payments, but you also need to be aware that your finances and credit will play a part in your insurance. Car insurance companies will look at your driving history to determine your coverage. Driving record, age, type of vehicle and where you live are all compiled to decide what your plan is going to be. Plus, you might not be aware that car insurance companies have their own type of score for assessing you.

Credit-based insurance score
While some lenders use your standard credit score to determine your rates and loan, insurance providers use a different scale. According to a study commissioned by, about 97 percent of insurance companies in the U.S. use a credit-based insurance score to determine your coverage. Whereas a standard credit score will measure your creditworthiness, an insurance score is used to judge your level of risk as a driver. Insurance companies use this score to assess the chances that you will file a claim in the future. But the two scores are similar and use alike factors to determine risk, and the higher your score, the better plan you can get.

Your driving record will play a part in determining your score, but your finances are still important. There are between 20 and 30 different pieces of financial data that are used to compile the score, including:

  • Debt
  • Payment history
  • Bankruptcies
  • Collections
  • Length of credit history

Insurance companies will want to check on a number of things to make sure you will not be a risk as a driver. Your finances can be an indicator, just like with a normal credit score. And like credit bureaus, insurance companies will put a lot of weight on your responsibility in paying back your debt. Lamont Boyd, an insurance underwriting expert at FICO, told that 40 percent of your insurance score is based on whether you pay on time.

A standard FICO score ranges from 300 to 850, but the insurance score range is larger. It can be as low as 200 and as high as 997. It is uncommon for someone to have a perfect score, but one that is over 770 is considered good, while anything under 500 is poor. Every insurance company is different in how it uses these scores, as some may use it more often than others. Mark McElroy, executive vice president of insurance business for TransUnion, said insurance providers will look at this score at different times, but if you are applying for a new policy, it is almost a given that they will check it.

Now that you have figured out what goes into one of these scores, you should be aware of the dangers of having a poor one. Credit-based insurance scores, like standard credit scores, do not reveal the exact formula for determining your score, but having a lower one could result in your premiums and interest rates being higher. McElroy said that if you already have an insurance plan, there could be other factors used to judge your premiums besides your credit-based insurance score.

"Changes to your vehicle, changes to where the vehicle is kept and any accidents or moving violations you incur are the things insurance companies are most interested in mid-policy," McElroy said.

The methods to repair this score are similar to the ways in which you would fix a standard score. Continue to pay all your debt obligations on time, avoid opening too many lines of credit and keep your credit-utilization ratio down as much as possible.