Your insurance premium is determined by a number of factors such as where you live, your age, your claims history, how many miles you drive, and your credit score. Learn more about why these factors are used to determine risk, specifically the impact of your credit score to your insurance premium.
Maintaining a good credit history suggests you’re a less risky customer. Insurers started using credit-based insurance scoring in the early 1990’s when FICO conducted studies that showed a statistical correlation between a person’s credit and his/her likelihood of filing an insurance claim.
That said, research indicates that if you are responsible with your finances, you will also be responsible on the road, when taking care of your home, and with your health. Statistics show that a higher credit score indicates a lower risk, which translates to a lower rate. That’s certainly good news for those with a good credit standing. A 2018 study by WalletHub.com and AAACreditGuide.com found that people with no credit pay an average of 64% more for car insurance than people with excellent credit.
Credit-based insurance scores are tricky. There’s no standardization in how insurers use them. One insurer may weigh your score heavily and another may not consider it to be important when determining premium. According to the NAIC, about 95% of auto insurers and 85% of home insurers use credit-based insurance scores in states where it’s allowed. The only states that ban the use of credit in setting insurance rates are California, Maryland and Massachusetts.
Remember, your credit score won’t change overnight. Develop and continue practicing better financial habits, and you’ll start to see your score increase over time.
© 2020 Zywave, Inc.