Car insurance rates are dependent upon a long list of factors. One of the most important factors to most insurers is the applicant’s credit score. While there are a few states where using your credit score to help determine auto insurance rates is not allowed, in most states, including North Carolina, it’s perfectly acceptable. Here in Greensboro, your credit score is high on the list of things your insurance underwriter looks at when figuring car insurance rates.
Most auto insurers create what’s known as an insurance score for each applicant. Your credit score is a major component of your insurance score, along with your claims history and previous accident history. Insurers interpret multiple past claims, which may stay on your record for years, as an increased risk of future claims. A history of accidents will hurt your chances of getting preferred rates from your insurer. Your actual rate, however, can vary greatly from one insurer to the next. This is one reason why, when shopping for auto insurance, you should obtain multiple quotes for comparison.
Insurance scores give underwriters an idea of how likely you are to be involved in an accident and file a damage claim. The more favorable your insurance score, the lower you can expect to be charged for your policy premium.
Credit scores are used to evaluate your overall creditworthiness. This includes your ability to repay an array of credit obligations such as your mortgage, personal loans, credit cards, etc. Your credit history plays a major factor in calculating your insurance score. Factors considered include:
- Frequency of payments, both late and on-time
- Average time span between a bill’s due date and the payment being made
- Previous defaults such as repossessions, foreclosures, liens and bankruptcies
- Number of credit inquiries
- Number of liabilities open and in good standing
- Diversity of credit sources
It All Makes Sense
You might wonder what your credit score has to do with determining your car insurance rates. It doesn’t necessarily have to do with whether or not you’re likely to pay your premiums on time, because if you fall into the habit of making late payments on your policy your insurer has the option of dropping your protection. It’s actually something other than that. Insurance companies do extensive research on what makes a safe policyholder, and there’s a direct correlation between paying your bills and making an insurance claim.