Your credit score plays a crucial role in determining the amount you pay for auto insurance. Credit scores are used by insurers to determine the level of risk that they are taking on when they provide you with auto insurance coverage. A good credit score can lead to lower auto insurance premiums, while a poor credit score can result in higher premiums.
Insurance companies have found that there is a strong correlation between credit scores and the likelihood of filing a claim. According to a study conducted by the Federal Trade Commission, drivers with lower credit scores are more likely to file insurance claims than those with higher credit scores. As a result, insurance companies charge higher premiums to drivers with poor credit scores as they are considered to be high-risk policyholders.
Insurers believe that drivers with poor credit scores may also have financial difficulties or poor budgeting skills which could lead to missed car payments, and ultimately, the inability to incur repair or medical costs from an accident. This increases the likelihood of expensive claims which may require the insurance company to pay out large sums of money.
When you apply for auto insurance, the insurance company will likely ask you to provide information about your credit score. This information is then used to determine the amount you will pay in monthly premiums. A bad credit score can lead to higher premiums, while a good credit score can lead to lower premiums.
It’s important to note, however, that the use of credit scores in determining auto insurance premiums is banned in some states such as California, Hawaii and Massachusetts.
So, what should you do if you have a poor credit score and need to reduce your auto insurance premiums? There are a few steps you can take to improve your credit score, such as paying bills on time, reducing debt and checking your credit report for errors. Even small improvements can result in lower auto insurance premiums over time.
In conclusion, if you’re shopping for auto insurance, it’s important to keep in mind that your credit score may have a big impact on the amount you pay each month in premiums. By taking steps to improve your credit score, you can potentially save yourself hundreds or even thousands of dollars over the course of your policy.