Credit Score: Does Poor Credit Affect Your Auto Insurance Premium?

Paying your bills on time has been ingrained in you since you were a kid. You learned to never spend money you don’t have, and that a credit card, though in your name, is not your money; it’s money you have to pay back—with interest.

You have followed this rule to a tee, until you experienced an auto emergency. Waiting at a stoplight, a distracted driver rammed into the back of your car. After filing a report with the responding officer and getting the vehicle towed to the nearest mechanic, you learn that repairing the car is going to cost a couple thousand dollars, after your auto insurance is applied.

You put the repair costs on your credit card; you can’t get to work without a car, it’s a necessary expense, you’ll pay it back. You then jump on to CoverHound.com to compare auto insurance rates. After this experience, you know you can (and should) get better coverage!

After missing a couple of credit payments (what’s the point of enabling electronic notifications if they don’t notify you?!), your credit score has sunk. Fortunately, CoverHound is still able to find you reasonably priced insurance rates (Hallelujah!), but they have gone up just a tad.

Credit score influences what insurance companies charge clients. Here’s how:

Poor Credit, Expensive Premiums

According to CNBC News, “drivers with poor credit may pay an average annual rate that is $690 higher, compared to drivers with good credit.” Why the cost difference? Drivers with a low to poor credit score are categorized as high-risk. High-risk drivers are thought to be a liability. It’s believed they are more likely to be involved in auto accidents and less likely to pay their insurance premiums. These two types of situations leave the auto insurance company holding the door.

Remember, your insurance company is also a business—if they don’t charge clients a certain amount of money, they won’t turn a profit. Insurance companies have to make money in order to cover their clients after an accident. If they don’t have the money to do so, insurance companies can’t properly serve their client.

Poor Credit Outweighs Accident History

It’s commonly believed that our driving history is what influences our auto insurance rates, and it does. However, as addressed above, our credit history plays a significant role too. The AutoBlog shares with readers that “the majority of insurance companies consider credit history a key factor when setting car and home insurance rates. Every state except for California, Massachusetts and Hawaii let insurers check credit history. Insurance companies use the logic that people who pay bills on time file fewer and cheaper claims than those who make late payments.”

Insurance companies believe that clients who are less likely to pay their bills on time are more likely to make rash decisions, i.e. choosing to speed through a yellow light as opposed to coming to a complete stop. This drives up premiums for drivers with poor credit.

At CoverHound, we do everything we can to make sure you’re paired up with an insurance agency that puts your needs first. Get a free quote with a reputable agency today when you visit CoverHound.