Some car insurance companies consider an applicant’s credit score when they are deciding whether to extend coverage. Insurance companies evaluate the likelihood that a person will file a claim against their policy. The lower the risk of a claim being made, the better pricing that an insurer can offer.
Car insurance companies have determined that people with lower credit scores are more likely to make claims and to file exaggerated claims against a policy. Cases involving insurance fraud (which all policyholders end up paying for in higher rates) are more likely to be filed by customers who have lower credit scores, according to statistics gathered by the insurers. Having a credit score below 600 makes a person a higher risk for car insurance purposes, and that person will need to pay more for his or her coverage.
A person with a lower credit score may have fewer options available when it comes to paying for car insurance coverage. He or she may need to pay for coverage up front for six months at a time instead of paying premiums on a monthly basis. In some cases, a customer with poor credit may need to put down a sizable deposit before being allowed to pay the balance owing in monthly installments.
Not all insurance companies will check an applicant’s credit score before deciding whether to extend coverage. Those that do use this information are strictly regulated by state authorities.