Jessica Sautter has a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around auto insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

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Reviewed by Natasha McLachlan
Content Writer Natasha McLachlan

UPDATED: Oct 1, 2020

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There are many different factors that car insurance companies take into account when it comes to setting your rates. From your driving record to your age, type of vehicle, and more, insurance companies take a considerable number of factors into account and compare to statistics that set your premiums.

Couple Worried with Poor Credit Score

Your credit score is one of the risk assessments that insurance companies make in most states. While on the surface it may seem that your credit score would have little to nothing to do with being in an accident, you may be surprised at the relationship.

Although you still can obtain car insurance without credit checking, it can be expensive. Get more information here.

Why Insurance Companies Use Your Credit Score?

There are two fundamental reasons why insurance companies take into account your credit score when assessing your premiums.

A tendency to Pay On Time: The most obvious reason is that those with higher credit scores tend to pay their premiums on time. As with paying off loans, credit scores act as the most important indicator to insurance companies about their ability to pay on time.

However, it is true that people who establish a good paying record with an insurance company may see their premiums drop over time. This is because they have managed to replace the credit score with their history of making payments.

Does applying auto insurance quotes online hurt credit score? Here is your answer.

More Likely to Be Involved in an Accident: Although it may not sound very believable, it is true that people with higher credit scores are less likely to be in an accident, get traffic tickets, be charged with a DUI, or other offense that adds points to the driving record. Because they are less likely at least statistically to cause or create incidents where a claim must be filed, they enjoy lower car insurance premiums.

It should be noted that there are at least a few states that do not permit insurance companies from checking credit scores in assessing premiums.

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In Which States is Credit Checks Illegal?

Currently, there are only three states that do not allow credit checks. They are California, Massachusetts, and Hawaii. Only in these three states are credit checks not allowed in determining your car insurance premiums. In all other states, your credit score will be part of the search performed by insurance companies to assess your risk status.

Are Credit Scores Essential to Determining Premium Rates?

It is perhaps the most controversial question when it comes to why insurance companies set premiums. It should be noted that the number of statistics that have been used to determine rates has soared from just a few to over 30 in some cases. While most large insurance companies use seven factors, it is not uncommon for upwards of 300 to be researched and used.

Is your credit score too low to get an affordable premium? Learn here how to improve it fast.

It should be noted that the sheer number of factors means that in many cases drivers can compensate if they have poor credit scores. This does not make insurance companies using credit scores any less controversial, but it must be taken in terms of the whole when it comes to the number of risk factors that are present.

Unless you live in California, Massachusetts, or Hawaii, credit scores will continue to be used by insurance companies until they are prevented by law or they become an unreliable statistic to be used in determining driver risk.