Yes, credit score directly affects rates of auto insurance. FICO data is used to generate an insurance score that is credit-based and includes payment history (40%), debt level (30%), credit length (15%), new credit (10%), and credit mix (5%). This score does not predict the likelihood of repaying a loan, but the possibility of a driver filing a claim. Insurance companies use credit scores since research indicates a direct correlation between credit habits and risk of claims. In a University of Texas study that examined 175,647 auto policies, it was found that drivers with a poor credit score filed more claims and incurred greater losses than drivers with high credit scores. This provides insurers with quantifiable information to determine future risk. Drivers with better credit ratings tend to pay less for coverage. The score helps insurers to insure based on rate, risk, and eligibility of the policy.

How Credit Score Affects Auto Insurance Rates

Here are three ways a credit-based insurance score affects auto insurance:
  1. Premium Costs: Poor credit scores result in increased insurance premiums. Insurers see poor credit as a sign of high risk. Even when a person has a good driving record, the low score raises the cost of the coverage because of the chances of future claims.
  2. Policy Eligibility: Very low credit scores can result in the inability to access certain insurance policies. Some insurers use credit information to determine who qualifies. This can lead to coverage denial despite other perceived risk factors appearing safe, such as their age or driving history.
  3. Discounts: Good credit scores help drivers unlock low rates and special discounts. Insurers place their faith in customers who are financially responsible and give them better prices. Good credit facilitates access to loyalty benefits, special rates and savings in the long term.

What are the Factors That Matter Beyond Credit Score?

Here are four factors that impact auto insurance rates:
  1. Driving Record: The most significant consideration in rate setting is the history of a driver. Insurers check the record of previous tickets, accidents and claims. A history of 1 or more recent at-fault accidents incurs a significantly higher premium, irrespective of a credit rating.
  2. Age & Experience: Experience and age influence the price considerably. Statistically, drivers who are new to the operation of a vehicle are more likely to be involved in accidents. It is due to this higher risk that drivers aged below 25 pay higher premiums despite having a solid credit history.
  3. Location: The house influences the ultimate price. Insurers set rates in response to local conditions, such as the rate of thefts and vandalism and accidents in a ZIP code. Also, state-specific insurance regulations and minimum coverage rates affect the overall cost of a premium.
  4. Vehicle Type: The car influences the insurance rate directly. Insurers evaluate the cost of repairing the car, its overall safety ratings and the risk of theft. Cars that are expensive and those with a high horsepower, as well as those that are prone to theft, are more expensive to insure compared to safer, common models.

How to Improve a Credit Score to Lower Insurance Rates?

Here are four simple steps to boost a credit score:
  1. Pay Bills on Time: Payment history is the most important, accounting for up to 35% of a credit score. Always pay bills when they are due or before they are due. Research shows that even one payment that is 30 days late stays on a report for up to 7 years and significantly lowers the score.
  2. Reduce Debt: The amount owed accounts for up to 30% of the score. To increase the score, keep the credit utilization ratio low. This ratio is a ratio of credit used to the total credit available. Try and use less than 30% of available credit and definitely less than 10%.
  3. Monitor Credit Reports: Errors on credit reports can inaccurately lower the score and raise the cost of insurance. Everybody can obtain a free credit report from the three main bureaus every year. Regularly check the reports and dispute any mistakes to ensure that the score is accurate.
  4. Establish Long-Term Credit History: The length of credit history accounts for up to 15% of the score. Accounts that have been made for a long time do reflect financial stability. Maintain older credit accounts open and active to boost the average age of the credit profile

When to Review Your Insurance Policy?

Here are four times to review an auto insurance policy:
  1. After Credit Score Improvement: Payment history is the most important, accounting for up to 35% of a credit score. Always pay bills on time or before their due date. Research shows that the effects of even one payment 30 days delayed in a payment can remain on a payment report for up to 7 years and significantly reduce the score.
  2. Reduce Debt: The amount owed accounts for up to 30% of the score. To increase the score, keep the credit utilization ratio low. This ratio compares the credit used with the total available credit. Try and use less than 30% of available credit and definitely less than 10%.
  3. Monitor Credit Reports: Errors on credit reports can inaccurately lower the score and raise the cost of insurance. Everybody can obtain a free credit report from the three major bureaus each year. Regularly check the reports and dispute any mistakes to ensure that the score is accurate.
  4. Establish Long Term Credit History: The length of credit history plays a role up to 15% of the score. Accounts that have been established for a long time do reflect financial stability. Maintain older credit accounts open and active to boost the average age of the credit profile