How Does Credit Affect Car Insurance Rates?

There are a lot of factors that help insurance agencies calculate your car insurance policies, one of which is your credit. This is the aspect that often confuses and frustrates driver. What could possibly be the connection between an unpaid credit card and a car? 

Why Rates Vary 

Insurance agencies primarily calculate car insurance premiums based on the likelihood of a client filing a claim. These agencies don’t want to pay claims, as it costs the agency money, so they will charge more in order to compensate for the risk. For example, a driver with a bad driving record is more likely to cause an accident and file a claim than a driver with a great driving record, thus the former driver will likely pay more in car insurance premiums. 
Credit scores are seen more as a view into the client’s reliability. Insurance agencies want to know that a client will pay their bills in full and on time. Poor credit can mean that a client is not able to pay bills on time or has trouble maintaining payments. It is also statistically common for those with bad credit to file more claims than those with good credit. If an insurance agency believes a client is less reliable or more likely to file a claim and skip a payment, they may charge more for car insurance in order to make up for the elevated risk.

How Much is Car Insurance for Drivers with Bad Credit? 

Car insurance can jump a significant amount for drivers with poor credit—as much as over a thousand more a year. In Texas, the average rate of car insurance is about $1,644. For a driver in Texas with poor credit, however, the average cost of car insurance is closer to $3,170 a year. Texas has the fourth highest percentage jump in car insurance for bad credit behind Michigan, New Jersey and Arizona. 
Do All Insurance Agencies Consider Credit? 
Not all insurance agencies add credit scores to their consideration, but a lot tend to hide additional charges elsewhere to make up for the risk. There are other insurance agencies that offer forgiveness for bad credit and allow clients to set up an auto draft for their premiums so the client doesn’t have to worry about accidentally missing a payment date. You can even save money on filing fees by enrolling in auto draft. 

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