Lower Your Car Insurance Rate by Improving Your Credit Score

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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Your credit score is used as a tool to evaluate what type of financial risk you will be should a company or institution lend you money, provide you a service, or otherwise trust you enough to enter into a contract with you. Your credit score is widely used in any business deal, and getting car insurance is no exception.

Studies have indicated person’s credit score is an accurate measure of how many car insurance claims a person files, and how much the insurance company has to pay out per claim. While consumer groups complain these statistics are biased against low income people, the fact remains that car insurance companies calculate your car insurance rates with credit score in mind.

TIP: Your credit score impacts car insurance rates. A good credit score can lower your rate, a bad one will cause it to go up. Keep a good credit score, and your car insurance rates will benefit.

Why Your Credit Score Affects Car Insurance

Credit scores are widely accepted as being indicators of how responsible people are. While your credit score is only reflective of your responsibility with your bills and other financial obligations, research used by the auto insurance industry indicates that people who are financially responsible tend to be more responsible on the road. Car insurance companies will clearly favor people who are more responsible drivers, and will offer them cheaper car insurance rates as a result.

TIP: Whether or not you believe that your credit score is an accurate reflection of how responsible a driver you are, the fact of the matter is that your insurance company will use the score when setting your rates. If you want to minimize the impact your credit score has on your car insurance, you need to maintain a good credit score.

How to Keep Your Car Insurance Low

Although improving your credit score is a process that can take months, or even years, if you’d like to reduce the effect your credit score can have on your car insurance then you can be responsible in managing your debt in the following ways:

  • Pay your bills on time, especially loan repayments and credit cards.
  • Avoid extending debts to the point where you are sent to collections
  • Reduce the number of loans you take out
  • Keep your credit cards manageable. Using them and paying your monthly bill in full can build your credit score, but over-extending them can hurt it.

You can consult a financial planner for the best way to improve or maintain your credit score, but the general rule on credit scores is fairly straightforward: pay regularly and don’t go into serious debt and you will be fine. Regardless of your financial situation or credit score, you need to be sure to check your score regularly so you are not surprised when a car insurance uses it.

TIP: When you are getting a car insurance quote online, keep in mind that different companies treat your credit score differently. If you have good credit, find a company that will discount your car insurance rates accordingly. If your credit is bad, you will want to compare multiple car insurance quotes and find a company that places less value on your credit score.

To find the best rate with your credit score, click here to use the Free Advice quote center today.

For more information about getting the right car insurance policy to fit your needs, check out the following articles:

Click Here for a FREE car insurance quote today!

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