New drivers may wonder if they need a credit score to get car insurance. While having no credit score history does not prevent us from getting car insurance, it can mean a higher premium. Insurance companies like to know what kind of a risk we are and need our credit history as one of those determining factors. With our credit history, they also would be able to predict how often we are likely to file a claim. In general, a higher credit score means cheaper instance rates. However, if the credit score is below 650, car insurance premiums start to climb. You do not need a credit score to get car insurance if you don’t mind paying as much as 67% more for that car insurance.
Car Insurance at a Glance
In a nutshell, auto insurance helps shield you from incurring financial losses if you are involved in an auto accident. It also provides a layer of added protection if your car is damaged, lost or stolen.
How Your Credit Score Impacts Your Car Insurance
Do we need that credit score to get car insurance? The straight answer is no; we do not need a credit score to get car insurance. On the other hand, having insurance without a credit score incurs a higher premium. Below are some points to help make that decision.
The choice is ours as to whether we would like to use our credit score to get car insurance or not. Some car insurance companies are happy to give us car insurance without a credit score. A car Insurance premium payable without a credit score is much higher.
The Connection Between Car Insurance and Credit Scores
Over 90% of the car Insurers in the United States use your credit score to determine your premium.
Why Do Insurers Look at Credit Scores?
The client’s credit history is one of the meaningful variables when trying to identify high-risk individuals. Car insurers do a statistical analysis to see if we are likely to file a claim based on our credit score.
The Role of Credit Scores in Risk Assessment
The credit history tells the insurers if you are likely to be a late payer, have outstanding accounts and whether your accounts are in good standing. This all helps to determine what type of premium we would pay. Having a credit score to get car insurance, if it is below the score of 650, could at the same time push up your premium. However, without a credit score, you could pay as much as 67% more for car insurance.
Legal and Regulatory Aspects
States that Prohibit Credit-Based Insurance Scores
In the states of Massachusetts, California, and Hawaii, credit scoring is not allowed to help determine your rate. So, in those states, you do not need a credit score to get car insurance.
Improving Your Credit Score for Better Insurance Rates
Follow these tips to help upgrade your credit health and potentially qualify for lower premiums.
Steps to Improve Your Credit Score
Be sure to pay all your digits on time, lower your balances on revolving debt if possible and refrain from applying for new credit you don’t need. Also, don’t close old accounts that are in good standing, as this could negatively impact your credit age.
Monitoring and Managing Your Credit Report
Regularly check your credit reports, especially at the three major credit report agencies, Equifax®, Experian®, and TransUnion®. Be sure to do this before you buy car insurance to determine what type of premium should be offered to you. You can also sign up for an online tool to check, monitor and improve your credit score.
The Long-Term Benefits of a Good Credit Score
The benefits of a good credit score for getting car insurance are that the higher your credit score, the better the rate you will get. A negative mark, such as a late payment, lowers your rating. A low credit score implies financial stress, which could put you into a high-risk category because your behavior could be affected by this higher risk. A good credit score to get car insurance can often be as important to insurers as your driving record. A good credit score could also save you as much as 54% of your premium when you get it from an insurer like Farmers Insurance.
Alternatives and Options
These alternatives can also help you lower your auto insurance premiums.
No Credit Check Car Insurance
No credit check car insurance is an option for drivers with poor credit or who prefer not to have their credit pulled when applying for a policy. This is a common practice in states that allow it to set premiums, but you can steer clear of this policy by finding a provider that skips credit checks.
Keep in mind that no credit check car insurance policies may come with higher premiums to offset the perceived risk. Furthermore, these policies might be less flexible in terms of coverage options. Drivers considering this type of insurance should compare quotes from multiple providers to ensure they are getting the best possible rate and coverage for their needs.
Usage-Based Insurance Programs
Usage-based insurance (UBI) programs, also known as pay-as-you-drive or pay-per-mile insurance, offer an innovative way to determine premiums based on actual driving behavior rather than traditional factors like credit scores. These programs use telematics devices or smartphone apps to monitor driving habits, including speed, distance traveled, braking patterns and time of day when driving.
Drivers who demonstrate safe driving habits often receive lower premiums. It’s also worth noting that these programs promote safe driving habits and incentivize drivers to be more cautious while on the road.
Discounts and Other Cost-Saving Measures
Many car insurance providers offer a variety of discounts and cost-saving measures that can help reduce premiums, even if you have less-than-perfect credit. Common discounts include:
- Safe Driver Discounts: For drivers with a clean driving record.
- Multi-Policy Discounts: For bundling car insurance with other types of insurance, such as home or renters insurance.
- Good Student Discounts: For students who maintain a certain GPA.
- Low Mileage Discounts: For drivers who drive fewer miles annually.
- Vehicle Safety Discounts: For cars equipped with advanced safety features like anti-lock brakes, airbags, and anti-theft devices.
In addition to these discounts, drivers can also consider raising their deductible, which can lower monthly premiums. But it also means paying more out-of-pocket if you need to file a claim. So, be sure to have the funds readily available if needed.
Shopping around and comparing quotes from different insurers can also lead to considerable cost savings. More information on how to score the best deal on auto insurance coverage will be provided shortly.
How to Get the Best Car Insurance Rates
You can do the legwork on your own to find the auto insurance providers offering affordable coverage. You can also use Experian Auto Insurance, a free tool that helps consumers compare car insurance quotes with ease and access other valuable credit-related resources. Visit Experian’s website to learn more.
We hope that this information will also help you to determine whether to use your credit score to get car insurance.
Frequently asked questions
How Often Should You Check Your Credit Score?
Financial experts recommend that you check your credit score at least once a year to confirm the contents are accurate and identify any potential errors or signs of identity theft. That said, if you plan to make a major purchase soon, it’s worth checking it more often to stay abreast of what’s going on in your credit file and avoid any surprises when you do apply for credit.
Can You Get Car Insurance Without a Credit Check?
Yes, you can get car insurance without a credit check through certain providers that offer no credit check policies. These policies are designed for individuals with poor credit or those who prefer not to share their credit information. While this option provides necessary coverage, it often comes with higher premiums due to the perceived increased risk by insurers.
To find the best rates on a no-credit-check car insurance policy, be sure to shop around and compare quotes from several providers. Doing so gives you the best chance to find a policy that best suits your needs.
How Quickly Can Improving Your Credit Score Affect Your Insurance Rates?
Your credit score can increase significantly if you take certain actions, like paying down debt or correcting errors on your credit report. The exact timeline varies by action, but you can see changes as soon as your credit file is updated.
