Your Credit Score and Your Car Insurance Premium

Q: What does my credit score have to do with my car insurance premium?

A: Credit score is one of the most controversial rating factors in a car insurance premium. You would think car insurance companies would focus on driving based information and vehicle information to determine if they want to cover a person if they get into a car accident.

From a driver’s perspective, this is a rational thought. However, insurance companies look at it from more of a claims standpoint with questions like the following:

1) How likely is this person going to have a claim?
2) How much is it going to cost us if they do have a claim?

Question number one is why they now use your credit score when factoring your insurance premium. They claim that research shows that people with lower credit scores are more likely to have a claim or exaggerate the amount of a claim. This course of action was mostly triggered by the rising numbers of insurance fraud about 20 years ago that forced the car insurance companies to look for solutions to combat it in every way possible.