A Good Credit Score Helps You Save on Car Insurance

cheaper car insurance

Your credit score plays an important role in your financial life. This one number can determine your interest rates, loan approval or even where you live. One thing you might not know is, in many cases, your credit score can affect your car insurance rates.

Say what?! You may wonder what exactly your credit score has to do with your car insurance rates. Read on to learn about the surprising link between your credit score and the cost of insurance, and how to score cheaper car insurance rates no matter where you stand.

How your credit score may impact your car insurance rates

Your credit score is used to illustrate your creditworthiness. It shows a prospective lender how likely you are to pay your bills on time, manage debt and more. But what does paying debt on time have to do with car insurance? What does your creditworthiness have to do with your history as a driver?

It’s complicated.

Not only that, but it’s not talked about very often. Many car insurance companies are hush-hush about the process.

“It is certainly controversial, but almost every insurance company in the U.S. factors an individual’s credit score into the rate they will pay for auto insurance,” says Joel Ohman, Certified Financial Planner and founder of the website Car Insurance Comparison. “Technically, the insurance company may not necessarily pull a credit score or credit report, but they will use some type of insurance score that is based on one’s credit score. Generally speaking, the better your credit score, the better your car insurance rate.”

Insurance companies take data from your FICO credit score and create their own auto credit score. Your auto insurance credit score may reflect a variety of factors including your payment history, credit utilization, number of accounts and more. Using this proprietary auto credit score, car insurers aim to predict how likely it is that you will file a claim.

According to data from Consumer Reports, your car insurance premiums can be higher if you have a lower credit score.

What this means for your wallet

The Secret Score Behind Your Rates published by Consumer Reports states, “Our single drivers who had merely good scores paid $68 to $526 more per year, on average, than similar drivers with the best scores, depending on the state they called home.”

That is the difference between having a good credit score and the best scores. For people with poor credit scores, the damage could be much worse. According to Consumer Reports data, a poor credit score could result in an additional $1,301 to their car insurance premium.

In other words, your credit score could be costing you more in car insurance — even without a moving violation, accident or anything else.

This auto credit score model is somewhat controversial, though it’s standard when it comes to car insurance companies. It’s also legal in most states — except California, Massachusetts, and Hawaii. Car insurers feel it is an accurate way to predict the likelihood of a future claim.

According to the Esurance website, “…research shows that credit scores can accurately predict accident potential. Statistical analysis shows that those with higher credit scores tend to get into fewer accidents and cost insurance companies less than their lower-scoring counterparts.”

It’s important to note that your credit score is merely one factor out of many that can contribute to your insurance premium. Where you live and your driving record will also affect your car insurance premium.

How you can qualify for cheaper car insurance

If your credit is less than stellar, you could be paying more in car insurance premiums without even realizing it. In order to get cheaper car insurance, check your credit report. Your credit report can inform your credit score, which also affects your unique auto insurance credit score.

You can check your credit report for free at AnnualCreditReport.com. If you see any errors, dispute them and make sure they are resolved quickly. Make your payments on time and improve your credit. Sign up for autopay or text alerts for bills you have missed payments for in the past. Keep your balances low and be mindful of opening new credit accounts.

Finally, don’t be afraid to shop around to find the best car insurance rates. Some companies may offer better deals than others, so it’s always a good idea to do a check up and get a quote on other options. This is especially true if you have a bad driving record or poor credit.

“Certain auto insurance companies specialize in higher risk drivers. This means that if one has a DUI in their history, many accidents, or even poor credit, then it becomes all the more important to shop around and compare rates from many different car insurance companies,” says Ohman.

Final thoughts

It may seem unfair to use something like your credit score to determine your car insurance premiums. However, it’s a pretty standard model car insurers use. To qualify for cheaper car insurance, stay on top of your credit and know the impact it can have on your premiums. Make your payments on time and keep your balances low so you have a strong auto insurance credit score and improve your chances of getting an affordable rate.

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1 Includes AutoPay discount. Important Disclosures for SoFi.

2 Important Disclosures for Citizens Bank.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2017, the one-month LIBOR rate is 1.23%. Variable interest rates range from 6.02% – 15.97% (6.02% – 15.97% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000Visit Upstart
5.29% - 14.24%1$5,000 - $100,000Visit SoFi
8.00% - 25.00%$5,000 - $35,000Visit Payoff
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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