Research shows that credit-based insurance scores can accurately predict the potential for insurance losses. Statistical analysis shows that those with the worst insurance. Most insurers use credit checks to create a credit-based insurance score to help you set your rate. Some insurers offer car insurance without a credit check, which may seem appealing if you have a poor credit history.
However, taking out car insurance from a company that doesn't check your credit doesn't necessarily mean you'll pay a lower rate than you would with a company that checks your credit. It's true that insurance companies check your credit score when they give you a quote. However, what they're doing is called “soft searching,” a type of query that won't affect your credit rating. You'll be able to see these inquiries in your personal credit reports, but that's about it.
These inquiries are not visible to lenders and have no effect on your credit rating. While your car insurance policy will never affect your credit rating, the opposite can happen. According to the National Association of Insurance Commissioners, 95% of auto insurance companies use what is called a credit-based insurance rating to calculate premiums in states where this practice is allowed. As a result, having good credit can help you when looking for a new insurance policy or when your insurance company renews your policy.
If you have a clean driving record, you may qualify for affordable car insurance despite your credit problems. Auto insurance companies don't report their premium payments to credit bureaus, so your policy doesn't appear on your credit report. However, some offer car insurance without a credit check because they base their car insurance premiums on other factors. In Texas, Dillo Insurance offers auto insurance policies to customers with fines, accidents, interruptions in coverage, or without prior coverage without checking their credit.
Insurance companies say that drivers with lower credit scores are considered to be at greater risk because certain studies indicate a connection between how a person manages their finances and the likelihood that they will file an insurance claim. Keep in mind that certain states have laws that do not allow the use of credit information as part of car insurance pricing. Most auto insurance companies will check your credit-based insurance score as part of the underwriting process, if you live in a state that allows it. Your credit history influences your credit-based insurance rating, which insurance companies use to help predict the likelihood of an accident or claim in the future.
While your credit situation may affect the amount you pay for car insurance, insurance companies generally can't base approvals and rates solely on your credit score. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provision, limitation or exclusion that is expressly stated in any insurance policy. Because insurance policies don't usually appear on credit reports, your credit rating is likely to be safe from damage if your insurer doesn't send the account to collections. Even in states where there are no such limitations, insurance companies generally do not use a credit-based insurance rating as the sole basis for increasing rates or for refusing, canceling, or refusing to renew a policy.