Many car insurance companies will take into account your credit history when deciding on the level of your premium. This is because they take the view that a person’s credit history is a behaviour indicator and that those with poor credit are more likely to make claims. For this reason poor credit does mean higher premiums.

Insurance companies take other factors into account when deciding on your premium, including your age, driving history, type of vehicle and where you live. However, if you have bad credit or have not yet established a credit history you could save money by going to an insurer that does not use credit history as part of their risk assessment.

You may be surprised to know and feel it is unfair for an insurer to have access to your credit information without your consent. It is a normal and perfectly legal practice covered under the provisions of The Federal Fair Credit Reporting Act. This permits such disclosures in relation to several circumstances including credit,insurance and employment applications. The Act can be found at www.ftc.gov/os/statutes/031224fcra.pdf

If you feel your credit history is better than your insurance company believes it to be, make sure they have your correct details, including social security number, date of birth, and correct name and address. Get a copy of your credit report and score to compare with the insurers search results.

Credit History Factors and Car Insurance Rates

Most insurance companies do not rely solely on your credit report when deciding on the level of your premiums. They apply a credit score, which takes account of several factors including:

  • Public records: collections, charge-offs, bankruptcy, liens, foreclosures, etc
  • Past payment history: the frequency and number of late payments and the days between late payment date and the due date
  • Inquiries for credit: the number of times you have recently applied for new credit, including credit card accounts, utility accounts and mortgage loans
  • Length of credit history: the amount of time you have been in the credit system
  • Number of open lines of credit: the number of credit cards you hold and whether you use them or not
  • Type of credit in use: store credit cards, major credit cards, finance company loans, etc
  • Unused credit: how much you owe compared to how much credit is available to you.

Your insurance credit score may vary from company to company, as they will use different combinations of criteria in determining your premium. Your insurance credit score is not the same as your credit score, which is taken into account as a part of it.

Because each company has it’s own evaluation methods it is difficult to give a good insurance credit score figure that would be true for all insurance providers. In general though, a score of higher than 650 should result in lower premiums.

Your agent or insurance company is not obligated to tell you your insurance credit score. The agent may not in fact even know it. They will be told only that you qualify for a particular rate or policy.

If you have a copy of your credit report and feel the information is incorrect you should advise the credit bureau immediately. Once you report an error they must investigate it and let you know the outcome within 30 days. You may also contact trusted Companies for professional advice and assistance with regard to having your credit score repaired.

If corrections are made to your credit report you can request that the credit bureau sends a notice of the correction to any creditor or insurer who may have checked your file in the six months prior to the correction being made. Once any errors have been corrected you should get a new copy of your credit report a few months later just to make sure wrong information has not been reported again.

The three national credit bureaux that will give a free copy of your credit report are:

  • Trans Union (800-888-4213)
  • (800-685-1111)
  • (888-397-3742)

Once you believe there are mistakes in your credit report let your insurance company know immediately. Do not wait until the credit bureau completes its investigation. Tell the insurer you are having your report investigated ask if the errors you suspect, and have reported will make a difference to your insurance quote or premium. You can tell them you are disputing the information and ask that they defer their decision on the cost of your premiums until the information is corrected. Minor errors will have little if any effect on your premium, but more significant mistakes could be expensive. Some companies are unable to adjust the premiums until after the score has been corrected.

If you have successfully taken steps to improve your credit score, you should let your car insurance issuer know and ask them to re-evaluate your application.