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How Does Credit Score Affect Car Insurance ?

This article covers various aspects, including the meaning and need of car insurance and the impact of credit score on car insurance. Read on to know more!
does credit score affect car insurance
How Does Credit Score Affect Car Insurance ?
Does credit score affect auto insurance is an important question to consider while applying for auto insurance considering many companies use a credit-based score for premiums. This guide will help in getting the answer to your question.
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Anyone who has ever applied for a credit card, loan or mortgage knows the importance of a credit score. However, does credit score affect auto insurance in any manner is quite a relevant question? Calculating a person’s credit score depends on various factors. Some of these factors include income flows, regularity in debt payments, length of credit history, and the number of active accounts. 

However, it is not everyone’s common knowledge that credit score is critical in calculating car insurance premiums in a similar manner that other factors have been discussed. This article covers various aspects, including the meaning and need of car insurance and the impact of credit score on car insurance.

What is Car Insurance?

Before discussing whether your credit score affects car insurance, let us cover a few bases. There are multiple risks associated with owning and driving a car. There are potential threats of a vehicle being damaged (due to accidents, collisions, and other factors), theft or might require a considerable amount of money for repairs due to any mishap. 

In such circumstances, car insurance is critical as it provides financial cover to the vehicle, driver (and co-passengers) and third parties involved in an accident. The coverage, however, depends on the type of policy chosen by a car driver. It is a mandatory requirement in the US, with only two states being the exception.

However, besides the legal compliance requirements, having car insurance provides much-needed peace of mind for car drivers. The next part of the story elaborates further on why one needs car insurance.

Why Do You Need Car Insurance?

Car insurance is important for a car owner or lessee for various reasons. Here are some of the most critical reasons:

  1. Mandatory Requirement: Car insurance is required by law, and a driver might not be allowed to drive without valid insurance in the US. Any non-compliance with this can lead to hefty fines and other charges. 
  2. Protection of the vehicle, self and third parties: Based on the category of car insurance opted by an individual, it helps provide financial coverage in case of any mishaps. This includes vehicle protection (during any mishaps), life/disability coverage of the driver and co-passengers, and covering legal and financial costs related to third parties/properties included in an accident. 
  3. Lease Requirements: If you wish to take a car on lease in any US state, having car insurance might be one of the leasing requirements. 
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Does Credit Score Affect Auto Insurance?

Does car insurance affect credit score or vice-versa? Even though there cannot be a definite answer to these questions, the most general response would be affirmative. With a few exceptions (Massachusetts, Hawaii or California), several insurance companies in the US use credit scores to determine the level of risk while providing premium quotes to car owners. 

There is a well-researched relationship between credit scores and car insurance. According to a study by the Federal Trade Commission, credit-based insurance scores are an essential determinant of eventual claims. Owners with a lower credit score have a better chance to file than those with a higher credit score.

At the same time, there is a correlation between poor credit scores and a high probability of filing any insurance claim, including auto insurance. There has been a long discussion about the morality of using such information for determining car insurance premiums. Various practices help understand the correlation between the two factors. 

Also Known About : What Is an Excellent Credit Score?

Is Credit Score Required for Car Insurance?

Even though a car owner doesn’t need a high credit score to get better deals on car insurance, there is enough evidence confirming the critical aspect of getting the best quotes and premiums. It is no hidden secret that various insurance companies consider different factors to evaluate the potential risks associated with the insured and assess the premium. Some of these factors include driving history, age, gender, location and credit score.

Hence, unless it is restricted or banished by law to use such a practice, there is a strong relationship between the two factors. 

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What is the Best Credit Score for Car Insurance?

We have answered the question: does credit score affect auto insurance? Now, let’s discuss the best credit scores needed for the best deals. There are no strict criteria based on which the best credit score for car insurance could be considered. However, a score deemed ‘good’ (ranging between 670 and 739) is regarded as the baseline for competitive pricing insurance policies. 

The insurance companies might not use the numbers directly. However, it could be a critical factor in determining the eventual quotes forwarded to a car owner. A decent or high credit score might translate into a lower car insurance premium offered by the insurer. Beem’s active credit monitoring will help you in reviewing your credit score before you look for suitable auto insurance.

Conclusion

To conclude, car insurance is mandatory for leasing and owning a car in the United States. Besides providing coverage against any mishaps in the future, auto insurance provides peace of mind to a driver. Car insurance covers different aspects to provide the best protection for your vehicle. So, does credit score affect your auto insurance?

A close relationship exists between an individual’s credit score and the car insurance premium offered. Insurance companies use credit scores to assess risk and determine insurance rates. Drivers with higher credit scores are seen as less risky to insure. There are no strict criteria for the best car insurance. However, a credit score of 670 to 739 is considered good. It can result in more competitive pricing for insurance policies.

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Author

Picture of Aniket Kulkarni

Aniket Kulkarni

A seasoned Product Manager specializing in car insurance content, Aniket has a passion for simplifying complex insurance concepts. His strategic approach to content development reflects years of experience in the product development industry, coupled with a commitment to providing accurate, reliable information.

Editor

This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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