Is Your Auto Insurance Cost Affected By Your Credit Score? “Can you tell me how to get to the Holiday Inn?” “Sure. You want to stay on this road for about $6.00 worth, then turn right at the stop sign, go about $1.25, then keep to your left and you will be there in about $3.15.”

1. Is Your Auto Insurance Cost Affected By Your
Credit Score?

2. “Can you tell me how to get to the Holiday
Inn?”

3. “Sure. You want to stay on this road for
about $6.00 worth, then turn right at the
stop sign, go about $1.25, then keep to your
left and you will be there in about $3.15.”

4. Like employing defensive driving strategies
behind the wheel in order to avoid collisions,
nowadays, we also have to be concerned
about how our finances can affect our auto
insurance rates.

5. Consider this: missing a single credit card
payment could increase the cost of insuring
your car, due to the widespread use of an
insurance scoring model that considers
policyholders’ credit histories.

6. Yes, your credit score matters.

7. Human Behavior
and a Credit Score

8. You may believe that your borrowing
behavior may appear unrelated to the risk of
something bad happening to your vehicle.

9. The insurance industry, however, says that a
credit history can be used to help predict the
likelihood of a policyholder eventually filing a
claim and costing the insurer money.

10. As a result, insurers are increasingly relying
on credit-based insurance scores —
calculated using information from
policyholders’ credit reports — when
providing insurance coverage.

11. These credit-based insurance scores share
similarities with traditional credit scores
used by banks and other lenders, including
the types of information they consider in
order to gauge risk.

12. But they also have some important
differences.

13. Insurance scores are designed to predict
insurance losses; credit scores predict the
likelihood of delinquency or nonpaying of
credit obligations.

14. While some of the same factors or
characteristics are used to develop a credit-
based insurance score, not all of the credit
information is used.

15. Insurance scores have been in use for more
than 20 years, but have experienced a recent
surge in popularity.

16. Today, the use of
credit-based scores is
widespread.

17. FICO, creator of the leading financial scoring
model that bears its name, says that roughly
95 percent of all auto insurance policies are
awarded today based to some degree, on
credit-based insurance scores.

18. What Factors Into Your Insurance Credit
Score?

19. • Outstanding debt

20. • Length of credit history

21. • Late payments

22. • Collections and bankruptcies

23. • New applications for credit

24. These factors, along with more traditional
factors like age, gender and claims data, are
used to determine insurance rates for
drivers.

25. So for everyone who drives a leased car, on credit-
card gas, to a mortgaged home, to enjoy their
favorite show on a financed big screen TV, for the
lowest auto insurance premiums possible, and a
good credit score, remember to keep your
payments UP and your accident claim rate DOWN.