Nearly every driver is legally obligated to have some type of car insurance that protects them and their finances in the case of an accident. There are several different factors that determine how much each individual drivers pays for their auto insurance, including things like their driving history, age, type of car and where they live. What might surprise you is that a credit rating plays a significant role in determining how much you will pay for your car insurance. There are several reasons that insurance companies give for including a credit score in their algorithm, with the following reasons being the most common.
People with Great Credit are Great Drivers
Although this certainly not a true statement across the board, many insurance companies claim that those who are financially responsible are also more responsible behind the wheel of the car. Whether wrong or right, this means that people with a strong financial history and great credit scores are more likely to have lower premiums.
People with Bad Credit are More Likely to File Claims
Again, this statement is not true for every driver, but merely a generalization that come insurers use within their algorithms to determine who pays most for car insurance premiums. The line of thinking follows that those with bad credit are more likely to file claims as they do not have the money to cover repair on their own. As this will eventually cost the insurance company more, they will charge higher monthly premiums to make up for that fact.
People with Good Credit are Less Likely to Need Car Repair
Some car insurance providers believe that those drivers with a great credit rating are more likely to be driving around in a newer car. This means that they will be less likely to need car repair down the road. In addition, those with higher incomes and better credit ratings are often more likely to have the income to pay for prevention such as oil changes, tire rotations and general maintenance.
People with Bad Credit are More Likely to Make Late Payments
The assumption is also often made that drivers with poor credit scores are more likely to be late in making their monthly premium payments due to financial issues. In addition, it is possible that they are more likely to default entirely on the policy and switch to a cheaper plan at any given time. Although this assumption, just like many of the others listed above, might seem unfair, statistically it is indeed more likely and therefore companies need to generalize in order to continue making money.
It is clear that there are many reasons why a driver’s credit rating might have an impact on their monthly premium costs. Although it may seem unfair to some, it is unlikely to change in the near future. If you have a poor credit rating there are other ways to pay less for car insurance, including paying for your policy upfront, driving a safer car or being a safer driver overall.
Image: Ecstatic Mark