At some point during the auto insurance shopping process, when you request a quote directly from a company, they will ask you for your social security number. This helps them run a credit check on your financial history. Insurance companies perform this check because they feel that your credit history is an accurate snapshot of how risky it will be to ensure you. But laws and regulations differ from one state to another; therefore, knowing how much they will charge extra for an imperfect credit score is extremely difficult for the average driver to calculate. Below, we’ll break it down for you. We will also help you find ways to raise a low credit score so that you can eventually save money on your monthly premium.
Like pretty much everything that has to do with insurance, figuring out how your provider is using your credit score to determine your premiums is convoluted and confusing. They don’t use your raw credit score, per se. What they do is run that credit score through an algorithm which calculates how financially risky it would be for your insurance company to cover you. This mystery number that their magical algorithm comes up with is known as your “insurance score”.
Your insurance score is rarely ever the same as your base credit score. For example, in most states, if you have outstanding debt from medical bills or other situations in which you had absolutely no control over the circumstances that led to your financial hardship, those will not be factored into your insurance score. With regard to your insurance score, the most important things in your credit report, as far as your insurance company is concerned, are:
Of course, the amount of information on your credit report that your insurance company can use to determine your insurance score varies from both state-to-state, as well as company to company. For example, California, Massachusetts, and Hawaii have completely banned the practice of using a driver’s credit score in order to alter their premiums. In the other 47 states, some have strict regulations on how much of your credit information a company can use – while other states are extremely lax and give your insurance company free reign to use as much of your credit history as they want to charge you a higher premium.
Most people get really confused when it comes to their credit report, their credit history, and how to change it for the better. If you’re one of these people, just know that you are not alone; in fact, you’re probably in the majority of drivers. But improving your credit score and getting a lower rate on your car insurance are much easier than most people think. If you’re concerned that your insurance company is charging you more based on your credit score, here are some steps you can take to improve it.
One of the safest and most reliable ways to get a free credit report is to go to the Federal Trade Commission – Consumer Information website. It’s an official website run by the us government that allows you reliable access to your entire credit history. From there, you can see details about how much debt you owe, your history of late payments (if you have any), and whether or not you have unknowingly been the victim of identity theft. Once you have your credit report, if you see any mistakes, it’s very important to contact the companies who have reported these discrepancies to the major credit ratings agencies and get them cleared up as soon as possible. This is especially true if an identity thief has taken out credit in your name; the longer it takes to catch them, and the less proactive you are, the harder it will be to rebuild your credit score and avoid financial ruin.
Alternatively, if you aren’t all that keen on big government, there are private companies out there who will also offer you a free credit report which contains similar – if not identical – information to what the government has on file for you. One good thing about these companies is that they often offer extra services, such as credit improvement suggestions or help funding offers on credit what you can afford in order to improve your score over time. However, these websites aren’t always 100% reliable, and some very important information may be missing off of the credit report they give you compared to your official credit report. Furthermore, there are hundreds of unethical companies out there which will try to charge you money to generate your credit report. If any business or entity claims that you cannot get a credit report without paying a fee or signing up for a subscription service, you should stay away.
Other steps you can take to gradually improve your credit score over time – although some of them are easier said than done – include:
In the charts above, you can see how dramatically you can save if you build up a strong credit score. Unfortunately, if you already have less than perfect credit but you still want a better deal on your auto insurance premiums, building your credit score up takes time and effort. But one thing you can do right now is shop around and compare car insurance quotes among different companies. You’re virtually guaranteed to find a better price than what you’re paying right now – bad credit or no.