Why Does My Credit Score Affect My Insurance Rates?

Why Does My Credit Score Affect My Insurance Rates?

Did you know that auto insurance companies take people’s credit scores into account when deciding whether to sell insurance to someone, and in deciding how much to charge them? If you’re thinking, “What does my FICO score have to do with my auto insurance?” you’re not alone. But believe it or not, your credit score is going to determine your insurance rates in a similar way as your driving record. Continue reading to learn why this is.

“Why do insurance companies care about people’s credit histories?” Mainly because the worse the credit, the higher the insurance risk. In other words, if someone has poor credit, the more likely they are to commit insurance fraud and fall behind on their payments.

What do insurance companies check?

  • The number of accounts an applicant has.
  • How much an applicant owes compared to their available credit.
  • If the applicant has any past-due accounts.
  • How often the applicant applies for new lines of credit.

What insurance companies can’t use against you.

  • Any medical debts that were sent to collections.
  • Any credit checks made for the purpose of insurance.
  • Credit checks ran by businesses without your knowledge and approval.

Note: If you were in the market for an auto loan or a home loan and you had multiple credit checks during a 30-day period, the auto insurance company should only count them as one.

Do I Have Any Alternatives?

Suppose you went through a hardship and as a result it negatively impacted your credit. In that case, you can ask the auto insurance carrier not to use certain life events against you if they ultimately damaged your credit.

These are the types of events we’re referring to:

  • You were in a major accident
  • You suffered a major injury
  • You became very ill
  • Your spouse, child, or parent passed away
  • You lost your job
  • You recently got divorced
  • You were a victim of identity theft

“Insurance companies can’t refuse to insure you or charge you more if your credit score was hurt by a divorce, temporary loss of employment, or similar life event. Companies must also make exceptions if your credit score was hurt because you were the victim of identity theft or if you experienced the death of a spouse, child, or parent. Insurance companies may require you to document the event before providing an exception,” according to the Texas Department of Insurance.

Next: Texas Auto Insurance Requirements

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