Will My Credit Rating Change My Insurance Rates?

I was recently asked this question by one of our Optistar Insurance Services clients, and thought I would share the answer here for our readers. There are a lot of things that go into homeowners and auto insurance rates, one of which is your credit score.

The short answer is: yes, in most states your credit score can and does affect your insurance premiums. Insurance companies use what's called a "credit-based insurance score" — which is similar to but not identical to your regular credit score — to help predict the likelihood that you'll file a claim.

Why Do Insurers Use Credit Scores? Studies have shown a statistical correlation between credit history and insurance claims. People with lower credit scores tend to file more claims, so insurers use this data as one factor in determining risk. It's important to note that insurers are not looking at your income or debt levels directly — they're looking at patterns in how you manage credit.

What Factors Affect Your Credit-Based Insurance Score? Payment history (do you pay bills on time?), outstanding debt, length of credit history, new credit inquiries, and types of credit in use all play a role.

How Much Does It Matter? The impact varies by insurer and state. Some states — including California, Hawaii, and Massachusetts — actually prohibit the use of credit scores in setting auto insurance rates. If you're in California, your credit score should not be affecting your auto insurance premium.

What Can You Do? If your credit score is impacting your rates, the best thing you can do is work on improving it over time. Pay bills on time, reduce outstanding balances, and avoid opening too many new accounts at once.

At Optistar Insurance Services, we shop multiple carriers to find you the best rate regardless of your credit situation. Give us a call and let us help you find the coverage you need at a price that works for you.