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How Your Credit History Impacts Your Sarasota Auto Insurance Rates

Did you know that having bad credit can affect more than just your ability to get a loan? It’s also a measure that over 90 percent of insurance companies use to determine what your auto policy rates should be. This practice is used by insurance agencies in every state except Hawaii, California, and Massachusetts.

Rather than focusing on a person’s age, gender, ethnicity, income, or marital status, a credit-based insurance score is determined solely on how good or bad your credit is. Therefore, a bad credit score means higher car insurance premiums and deductibles. Insurance companies enforce this policy because credit is an indication of how financially stable a person is. Bad credit means that the person might not be trustworthy, especially when it comes to paying a monthly premium on time.

Additionally, insurance experts have crunched the numbers over the years and found a negative correlation between having bad credit and filing claims. People with poor credit scores typically file more claims than those who have a good credit history.

Having a bad credit score can be attributed to a number of different factors. If you’re curious about why your score is so low, it could be because you:

  • Have a high level of debt
  • Had a collection agency contact you
  • Have a lot of payments that are past-due
  • Don’t have a lot of credit history
  • Have applied for a lot of credit cards

While a lender might use your credit score to determine your likelihood of repaying a loan, the insurance company uses it to compute your chance of filing a claim (and therefore costing them money). Because of that, your rates will spike the lower your score is.

In fact, according to a study by Quadrant Information Services, insurance rates for those with fair credit will increase by an average 17 percent compared to those with good credit. For those with poor credit, your rates increase by an average of 67 percent.

Insurance companies also typically increase the amount of down payment required for those with poor credit, as well as limit the different payment options used to pay your bill.

The best way to keep your insurance rates low and affordable is simply to have good credit. People with good credit usually:

  • Pay their bills on time
  • Have a long credit history
  • Maintain good standing with all of their credit accounts

If your credit score isn’t where you want it to be and you are paying more as a result, there is hope. There are a number of things you can do to improve your score. While none of them are quick fixes, over time they will help build your score to where it needs to be. Start the process by:

  • Keeping the balance on your credit cards low
  • Checking your credit report for accuracy
  • Keeping the number of credit cards you have to a minimum
  • Paying bills on time
  • Establishing credit early in life