By The Lambert Agency | Austin, Texas
When many people think about what influences their car insurance rates, they’ll often picture things such as their driving history, age, or the type of car they drive. One fact which may often surprise drivers is how much their credit score may end up influencing the price of their premiums.
Here at The Lambert Agency, we always believe in transparency, first and foremost. In this post, we’ll be breaking down exactly how your credit score may play a role in your car insurance rates, why it matters in the state of Texas, and what you can do to keep your premium costs as low as possible.
Why Insurance Companies Look at Credit Scores
Insurance companies do not actually check your credit report the same way lenders will check your credit report. Instead, insurance companies will utilize what’s known as an insurance-based credit score.
The specific score helps insurance companies predict how likely you may be to file a claim. Research has shown that people with higher credit scores will tend to file fewer insurance claims. When those people with higher credit scores do file a claim, it’s often less costly than those with lower than average credit scores.
Through these methods, insurers will use credit profile information as one of several factors to set their car insurance premium rates fairly and pre-determine overall risk profiles.
How Your Credit Score May Impact Your Auto Insurance Premium
In most cases, the better your credit score, the lower your car insurance premiums will be. Here’s a simplified breakdown of what that may end up looking like:
- Excellent credit (750+): You may receive the best available rates
- Good credit (700–749): You’ll still qualify for favorable rates with many carriers
- Fair credit (650–699): Your premium may be moderately higher, depending on included factors as well
- Poor credit (<650): You may end up paying significantly more over time, sometimes hundreds of additional dollars per year
This difference in premium costs can certainly add up quickly, especially for families with multiple vehicles under the same insurance policy.
Is It Legal in Texas to Use Credit Scores for Insurance?
Yes. Texas is one of many states which allows insurers to use credit-based insurance scores as a factor in calculating the rate of premium. With this being said, insurers cannot use credit scores as the only reason to deny, cancel, or non-renew your auto insurance policy.
Insurers must also consider other key factors such as your driving record, insurance claims history, vehicle type, and how many miles per year you drive on average.
How to Improve Your Credit Score, and Lower Your Rates
The good news? You do have control over your credit score. Even the smallest of improvements can end up resulting in better insurance rates over time.
Here are a few ways to begin improving your credit score and subsequently lowering your auto insurance rates:
- Pay your bills on time: Late payments will likely have a large impact on your credit score
- Keep balances low: Try to use less than 30% of your available credit at any given time to demonstrate to creditors you’re not overextending yourself financially
- Limit hard inquiries: Avoid applying for multiple new credit accounts, as this could end up temporarily lowering your score; as multiple hard inquiries are viewed as a possible risky credit profile
- Check your credit report: Review your credit report regularly for any errors which could be hurting your score
- Build consistency: Credit improvement does take time, yet insurers reward consistency and stability when it comes to improving your credit score
If your credit has actually improved since your last policy issuance, it’s certainly worth exploring new policy adjustments and also having your agent review your rates. You very well could be eligible for lower car insurance premiums.
Other Factors May Influence Car Insurance Costs
While credit definitely plays an important role in calculating insurance costs, it’s only one piece when factoring the equation. Insurers will also consider:
- Driving record and accident history
- Age and experience behind the wheel
- Type of vehicle and repair costs
- Coverage limits and deductibles
- Where you reside (urban vs. rural ZIP codes in Texas)
Here at The Lambert Agency, we work with a large array of carriers to compare and contrast these factors side-by-side, and determine the best overall value for your unique situation.
Let Us Help You Receive a Better Auto Insurance Rate Today
Your credit score is not exclusively related to borrowing power, it’s also an important part of your overall financial picture; including your car insurance costs. Through gaining a greater understanding of how your credit score is used and taking the right steps to improve it, you may be able to save hundreds or thousands of dollars per year.
If you’re curious about how your credit score may end up impacting your current premium or you would like to explore better coverage options, you’ll want to reach out to us at The Lambert Agency. We’re here to help!
Get a Free Auto Insurance Quote in Austin, TX
You do not have to pay more than you have to. By contacting The Lambert Agency today, you can request your free, no-obligation quote. We’ll thoroughly review your auto insurance policy, check for any and all discounts, and help you find the right level of coverage which fits into your needs, and your budget.