Car Insurance Costs

The use of your credit as a part of getting car insurance has been a growing trend for the last 10 years. Large population studies showed that the fewest and smallest claims were usually made by people with good credit. And because of this result, it's estimated that over 90% of all insurance companies use your credit in calculating how much you car insurance costs or deciding whether to issue you a policy.

So how do you know if your credit is affecting what your car insurance costs? The only sure way is to ask your agent. The Fair Credit Reporting Act requires that companies notify you when they take an "adverse action" against you due to your credit. But since neither "adverse action" nor the requirements for notification are spelled out in the law, insurers interpret the law in different ways. Therefore, to be sure, ask if and how your credit is affecting your premium.

Typically car insurance companies use a credit score to rate your credit. The score is a measure of various parts of your credit report but doesn't include your age, sex, marital status, or where you live. And unlike credit scores used by lenders, insurance companies don't use your income as a factor. What they do include in their scoring formula are such things as, the number of credit accounts you have, how much your total debt is, whether you've had a significant financial problem like a foreclosure, and what your bill-paying history has been. Overall, they determine what your car insurance costs by how financially responsible they think your are.