A Complete Guide to Credit Scores and Car Insurance

The significance of your credit score extends to major life purchases, with car insurance being no exception, especially in locations like Colorado, including areas such as Aurora, Colorado Springs, Longmont, and more. Approaching credit checks and reports without a clear understanding may result in future issues and unexpectedly elevated insurance costs. By comprehending the connection between your credit report and insurance, you can secure the most favorable car insurance rates available.

Read our guide to credit scores and car insurance below. The knowledge can help you with other aspects of your credit as well as your car insurance rates.

Insurance Rates

Car insurance rates are determined using many calculations. The credit score is just a piece of a larger picture. The credit score is gathered along with your driving history record and any previous claims records. When an insurance company pulls your credit score, the inquiry is typically a soft inquiry.

A hard inquiry, however, could cause your credit score to go down a few points and will remain on your credit report for two years. If you are purchasing a new car at the same time as car insurance, then the hard inquiry could cause your credit score to go down and, thus, your insurance rates to be higher. Ideally, you want to avoid any credit checks or the additional load of debt before you purchase a new car or inquire about car insurance.

Credit Check Laws

A majority of auto insurance companies will pull your credit score to give you a rate on auto insurance. In the United States, only three states have banned credit checks to issue auto insurance rates: California, Hawaii, and Massachusetts. Registration and insurance are based on your home address. You cannot just register a car in one of those states and try to skip out on the credit check in your home state.

The credit check is fairly easy on your end and will include basic information like your name, date of birth, and social security number. You do not have to pull up your own report or do any work to complete the credit check.

If you use a free credit report service, you will see the credit inquiry almost instantly. In some cases, duplicate inquiries may appear when they shouldn't have. Dispute the credit checks on your report to remove the extra inquiries and raise your score again.

Credit Scores

Credit scores typically range from 300 to 850. The number is a key factor of your credit worthiness and lock in low rates for your car insurance. Ideally, you want to have some form of established credit to help with a lower rate, but you do not need to. Established credit could come in the form of an auto loan or a credit card.

If you are saving up for a car, then consider opening your first credit card. A secured credit card is often easy to approve and includes a deposit to secure your card. If you are a younger driver, then you may bypass the credit check and join your parent's auto insurance policy. As long as you live at home, you can remain on your parent's insurance. There are no age limits.

Your parents can add you to their policy without affecting your personal credit score. Split the payment and see the difference in cost of adding you to their plan.

Credit Factors

The score itself is not the only factor a car insurance company looks at to establish your rate. Credit scores are broken down into multiple factors. One of the best ways to have good credit is to have a long-standing credit history. The longer you have had accounts open, the better your rates will be.

For example, a car insurance company may see that you've been paying student loans for five years. Five years of consistent payments will showcase your commitment to paying down debts. Other accounts could include car loans or home mortgages.

Some of the more negative impacts on your credit report may include collection payments or heavy debt. If you let a bill go to a collection agency, it could have a negative impact on your insurance rates.

Reducing Insurance Rates

One of the advantages of shopping for car insurance rates is the ability to secure new rates. If you are not happy with the rate you receive, then you could take your time to get better rates. Ideally, you should take at least a year to improve your rates. During the twelve months, you will want to make consistent payments, lower your debt, and avoid hard inquiries.

Before your insurance policy renews, have an insurance company look over your credit score and make adjustments. If you are able to lower your rates, then you can put the extra savings towards any debt and raise your credit score even more for lower payments in the future.

Find out about car insurance rates with our experienced professionals at L.A. Insurance. We can go over credit details and break down your complete costs for insurance policies.