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Is Your FICO Score Hurting Your Insurance Rates?

Last month we published, “What Determines Auto Insurance Rates?” and since it was a popular post, we thought we’d dig a little deeper into how FICO scores in particular affect insurance rates. We decided to shed light on this issue because a lot of licensed drivers throughout the country aren’t aware that their credit score is a factor in how much they pay for auto insurance.

As you know, your credit score is used to determine your creditworthiness – if you pay your bills on time, if you have too high of a debt-to-income ratio, and how likely you are to pay back loans and credit card debt. You may not realize it, but auto insurance companies look at drivers’ credit files to predict the odds of them filing a car accident claim.

If your auto insurance carrier doesn’t think that you have excellent credit, they’re inclined to charge you higher premiums, even if you have a clean driving record.

“The increase in your premium can be significant,” according to Consumer Reports. “Our single drivers who had merely good scores paid $68 to $526 more per year, on average, than similar drivers with the best scores, depending on the state they called home.”

And guess what? Your credit score could be the single factor that affects how much you pay for auto insurance more than anything else, says Consumer Reports. “For example, our single New Yorkers with good credit scores and clean driving records would pay an average of $255 more in annual premiums than if they had excellent credit scores,” according to Consumer Reports.

What an Insurance Company Says

Consumer Reports isn’t the only one coming out and talking about credit scores and insurance. “Nationwide uses a credit-based insurance score when determining premiums. Studies show that using this score helps us better predict insurance losses. In fact, 92% of all insurers now consider credit when calculating auto insurance premiums,” according to nationwide.com.

What do insurance companies consider when determining their credit-based insurance scores?

  • Payment history
  • Length of credit history
  • Types of credit established
  • Bankruptcies, liens, collections, and chargeoffs
  • Number of accounts and loans
  • Credit utilization

So, if you have a good driving record but poor credit, your FICO score could be responsible for your higher premiums – for many drivers their mystery is now solved!

Need to file a car accident claim in Saratoga Springs? Contact DeLorenzo, Grasso & Dalmata, LLP to schedule a free case analysis.