What's an insurance score?
An insurance score is similar to a credit score, but insurance scores use information in your credit file to help determine how likely you are to file an insurance claim. Different insurance companies calculate insurance scores differently, but with most insurers your insurance score is a significant factor in determining your rate -- sometimes just as important as your driving record.
Why do insurers care about my credit history?
Studies have shown a direct correlation between a person's credit and the likelihood of him or her filing a claim. Individuals with credit history that needs work are generally more likely to file car insurance claims, so they will often pay above-average car insurance rates. Similarly, people with excellent credit histories are generally less likely to file car insurance claims and will often be rewarded with lower-than-average rates.
Is this fair?
Many people don't like the fact that their credit scores are being used as an underwriting factor for their car insurance rates, but for most drivers this fact isn't going to change anytime soon. Three states -- California, Massachusetts and Hawaii -- currently forbid insurers from using credit data when determining car insurance rates. But every other state allows it to some degree.
How can I keep my rates as low as possible?
The best thing to do is to take excellent care of your credit. But if your credit score is already low and you need to purchase an auto insurance plan right away, there's likely not much you can do about your rates in the short term.
The next best thing to do is to shop around for car insurance quotes from multiple providers. All carriers use insurance scores in different ways, so you may be able to get a better deal at a different provider, but consider the potential consequences of rate shopping before you do it.
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