Did you know that your credit score can actually affect your auto insurance premiums? While prohibited in some states, more than 9 out of 10 auto insurers use your credit score in order to predict your likelihood of filing a claim. Because of this, a good credit score can actually positively affect what is called an “insurance score.” According to a ValuePenguin study done in March of 2016, a driver with poor credit could pay almost double in auto insurance premiums than that a driver with an excellent credit.
So what goes into an insurance score?
The insurance score is also affected by things you would expect such as driving record and the type of car you drive. But apparently, insurers have found high correlations between credit score and risk of filing a claim. Obviously, the lower the risk, the less in premiums that are charged to that consumer. While not every auto insurer considers credit score as much as others, it is definitely a factor.
Insurance scores consider credit history in a similar way to credit scores. Payment history can contribute up to 40 percent of that score. The combination of credit sources you have only makes up about 5 percent. Other factors that go into calculating insurance scores include:
- outstanding debt
- payment patterns
- length of credit history
- available credit
- late payments
- new applications for credit
- type of credit used
- past-due amounts
- public records
Could recent changes to credit reports actually help your insurance score, and save you on auto insurance premiums?
The good news is that if you don’t have the best credit score, there have been some changes that could improve your insurance score. In July of 2017, the three major credit bureaus, Equifax, Experian, and TransUnion, removed certain public records that didn’t meet new verification standards. The majority of the data removed involved tax liens and civil judgments.
While many credit and insurance scores were barely affected, it’s been found that consumers with lower insurance scores may see big changes. Consumers who had tax liens and civil judgments removed from their credit reports could see hundreds if not thousands of dollars a year in savings on auto insurance premiums.
Of course, there are not many consumers that fall into that category. Still, it is important to understand that there is an important connection between insurance scores and your credit report. You can actually ask your insurer to reevaluate your premiums if you know that your credit score has recently improved. It’s one more way to save on auto insurance.