How credit affects your car insurance

Your credit score, along with your driving record and the type of vehicle you drive, can affect what you pay for car insurance. Here are answers to some common questions regarding auto insurance rates and credit scores.

Credit-based insurance scores: How they work

Insurance companies in the United States use your credit score, along with driving history, claim history, and other factors such as your driving record and claims history to determine whether you are eligible for payment plans or to help set insurance rates. Again, this is not the case in California, Hawaii, or Massachusetts.

According to the II, if your credit score is higher, you have an excellent driving record, and no claims in your past, you will qualify for lower premiums. This score is just one factor used to determine your premium. You may be considered a higher risk to insure if you have a good insurance score, but a mediocre driving record.

How does Nationwide calculate car insurance rates?

The following are some of the factors that can affect your car insurance rates:

  • Experience or age of the driver
  • What your vehicle is used for
  • History of driving and insurance claims
  • Geographic Location
  • Credit History
  • Model and make of your vehicle

The make and model of your car can affect not only the cost of auto insurance but also what kind you need. Classic vehicle insurance, for example, is designed to meet the needs of classic car enthusiasts.

What is the impact of credit score on car insurance?

The credit score of a driver has an impact on auto insurance prices. Credit scores are used by the vast majority of insurance companies.

Your FICO score is calculated using five factors that are all linked to your borrowing record and current financial situation.

  • Payment History: 35%
  • Amount due: 30%
  • Credit history length: 15%
  • The mix of credit types 10%
  • New Credit: 10%

Credit scores can range between 300 and 850. Credit scores are usually divided into several levels.

It is not so simple as matching a score to a rate. Insurance companies use an algorithm to determine your “insurance rating.”

Why Insurance Companies Use Credit-Based Insurance Scores

Researchers have found that insurance risk can be accurately predicted by credit-based scores. Statistics show that people with lower insurance scores are more likely than others to make a claim. Better credit score holders tend to have fewer accidents and therefore cost the insurance companies less. Federal Trade Commission conducted an independent study to better understand the relationship between risk and credit history. The study found, as have others, that insurance scores based on credit history are good predictors of risks.

The factors that can affect your score

According to the Consumer Financial Protection Bureau, there are two types: hard inquiries and soft inquiries.

Hard inquiries

Credit inquiries are recorded on your credit history when you apply for credit. These hard inquiries can affect your insurance score.

Soft inquiries

Soft inquiries are made when you review your credit report, by lenders who check existing accounts, or by prospective lenders to pre-screen. These inquiries are visible to the consumer, but not to any other company. These inquiries will not impact your insurance score based on credit.

The factors that can affect your score

Favorable factors

  • A credit history that is long-established
  • No late payment or past due accounts
  • Accounts in good standing

Unfavorable factors

  • Past-due payments
  • Accounts in Collection
  • High debt relative to credit available
  • Short credit history
  • Credit inquiries are high

What is an exceptional life circumstance?

At Nationwide we value our customers. In all states, we have a process for extraordinary life circumstances. You may be eligible for a premium review if your credit history has been affected by any of the events listed below.

  • Any catastrophe declared by a federal or state government 1
  • Loss of total or other property that renders your home uninhabitable 1
  • Divorce is the dissolution or divorce of a marriage
  • Death of a child, parent, or spouse
  • You or a member of your immediate family may suffer a serious illness or injury
  • Loss of employment due to involuntary unemployment for three months or longer
  • Military deployment overseas

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