If you've been hit with high auto insurance premiums, chances are you could raise your auto insurance score to reduce insurance premiums. Unlike credit scores, which many consumers understand, your auto insurance score may seem more mysterious. You can control more aspects of an auto insurance score than you might expect, which can directly impact your insurance premiums. Read on to understand how auto insurance scores work and what you can do to raise yours.
What is an Auto Insurance Score?
Auto insurance protects drivers in case of an accident. Auto insurance scores are confidential ratings that calculate the likelihood you'll make an insurance claim. They have a direct impact on your insurance premiums.
Like a credit score, a car insurance score expresses a probability. Consumers with high insurance scores are less likely to make an insurance claim. Interestingly, most insurance scores are credit-based or factor in credit score elements. That's because drivers with a high credit score are statistically less likely to file insurance claims.
Insurance companies use information from the major credit bureaus — Experian, Equifax and TransUnion — to create their own rating system, a sort of car insurance credit score. The major credit score rating system, FICO, has a FICO car insurance credit score that many auto insurance providers use to calculate insurance premiums.
However, this is not true in all states. Certain states prohibit or restrict the use of credit for auto insurance ratings. If you live in California, Hawaii, Massachusetts or Michigan, your credit score won't impact your auto insurance score.
Why Having a Good Auto Insurance Score is Important
The benefits of having a good auto insurance score are far-reaching. The main benefits include lower insurance premiums, discounts on coverage and better coverage options. Here's why each of these matters.
- Lower insurance premiums: You can expect to pay between $113 and $460 monthly on auto insurance. While vehicle age, make and model have an influence, you could still save more than $100 a month with a higher auto insurance score.
- Insurance discounts: Some insurance providers offer discounts or premium coverage to drivers with high auto insurance scores.
- Increased chances of being approved for insurance coverage: If you have a low auto insurance score, it can limit providers willing to insure your vehicle.
- Access to better coverage and policy features: A high insurance score opens options for better coverage from more providers. Providers may offer comprehensive coverage or premium benefits for less.
Key Factors That Impact Your Auto Insurance Score
Auto insurance score is calculated using various factors. Insurance providers have different scoring models. While some may rely heavily on factors related to your credit score, like payment history and the oldest line of credit, others look more at driving-related factors. Factors that affect your auto insurance score include:
- Coverage
- Deductible amount
- Driving record
- Car insurance history
- Car make and model
- Age and driving experience
- Credit history
- ZIP code
- Other non-driving factors
Most auto insurance scoring models heavily weigh your driving record and car insurance history. Your driving record includes any moving traffic violations, accidents where you're at fault and traffic tickets.
If you have a history of at-fault accidents, DUIs or other traffic violations, you can expect to pay more in auto insurance, independent of credit score or other factors. Likewise, if you have a history of extensive insurance claims, even if you weren't at fault, you may have to pay more in insurance.
Auto insurance companies also look extensively at credit-based scoring models except in the four states where it's prohibited. Differences in rates for two drivers in the same area with comparable vehicles can come down to credit scores, which is why boosting your credit score can lead to lower insurance premiums.
How to Improve Your Auto Insurance Score and Rates
Your auto insurance score and rates aren't a foregone conclusion. You can take steps to improve your auto insurance score and rates. Tips and strategies to improve their auto insurance score include:
- Drive safely to avoid accidents: Any insurance claims affect your insurance score, but at-fault claims have the greatest impact.
- Avoid insurance claims: If you're in a fender-bender or other minor accident, offer to pay for repairs for the other driver and pay for any repairs yourself without making an insurance claim. In the long run, this can save you more on insurance.
- Maintain or build a good credit score: This can have a long-term impact on your insurance rates and scores.
To check your credit score, visit annualcreditreport.com. You're entitled to a free annual credit report from all three major credit bureaus. When checking your credit report, be sure to report or dispute any inaccuracies that could negatively impact the auto insurance score. In addition, you can regularly monitor your credit score as you work to increase it over time.
Key steps to increase your credit score are:
- Make on-time payments on all credit cards, loans and utilities
- Pay off all credit card debt
- Increase available credit with a high-limit credit card
- Consider using a rent-reporting company to report past on-time rent and utility payments
- If you have a friend with a high credit score, you could ask to become an authorized user on one of their credit cards for a fast score boost
Getting Better Auto Insurance Rates
Knowing that credit score can profoundly impact auto insurance rates means the power is in your hands to reduce insurance premiums over time. Working to pay off debt, setting up automatic payments to avoid late payments and using credit responsibly can go a long way toward building a good credit score.
An accident stays on your auto insurance record for three to five years. Practice safe driving, avoid insurance claims, and with time, you could see your premiums decrease. Looking for better auto insurance rates today? Find the best car insurance rates here.
Frequently Asked Questions
Does credit score affect car insurance?
Yes, in most states, your credit score directly impacts your auto insurance score and the insurance premiums you’ll pay. Your credit score doesn’t affect your auto insurance premiums in California, Hawaii, Massachusetts and Michigan.
What is a good auto insurance score?
Auto insurance scores range by the scoring metrics used by each insurance company. The data analytics company LexisNexis auto insurance scores range from 200 to 977. FICO auto insurance scores, calculated by the credit scoring company FICO, range from 250 to 900.
How often are auto insurance scores updated?
How often auto insurance scores are updated will vary by insurance company. Credit-based auto insurance scores may be updated monthly with each credit score update.
About Alison Plaut
Alison Plaut is a personal finance, business, and insurance writer with a sustainable MBA, passionate about helping people understand insurance choices and financial options to create financial freedom. She has more than 17 years of writing experience, focused on insurance, real estate, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she is a regular contributor for Benzinga.