Why Does an Auto Insurance Company Check My Credit Report?

Reader’s Question:

My friend told me that credit report affect auto insurance rate. Is it true that car insurance companies check it?

Vic

Seattle WA

Car insurance rate depends on different factors like age, driving record, make and model of the car and gender. By looking at these factors, you can easily figure out why are these being considered by car insurance companies. You’re probably surprised to find out that credit history also affects car insurance rate. Poor credit history or lack of credit history are likely to be viewed by car insurance companies as high risk drivers and will be then charged with high insurance rate.

Car insurance companies are permitted by law to use credit history as additional information in predicting the risk pose by drivers. If you have stable credit history where you pay your bills on time using your credits, you are less likely to file claim against your car insurence policy and you are likely to pay your insurance payments. However, consider a case where you lost a job 6 months ago and your credit card payments fell behind but you caught up, you may end up paying higher car insurance rate. On the other, if you don’t have credit history, car insurance companies may end up considering you as a possible risk because of lack of credit information.

There are ways to improve your credit history. Clean up your credits as soon as possible and pay the minimum amount that is due every month. Avoid spending beyond your means. If you dont have any credit record, get some. This factor may be preventing you from purchasing cheap car insurance rate. Without credit history, car insurance companies won’t be able to evaluate you and instead consider you as a risk. With credit, you can show car insurance companies that you are responsible in paying your credits. Lastly, monitor your credit reports. You can get a free copy of your credit report from the credit bureau, which the car insurance provider used. You can dispute if you feel that the information given is not correct.