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 that you'll pay a lower rate than you would with a company that checks your credit. Nationwide uses a credit-based insurance score to determine premiums. Studies show that using this score helps us better predict insurance losses.
In fact, 92% of all insurers now consider credit when calculating auto insurance premiums. Find out how you can save on costs by taking advantage of affordable car insurance with discounts. Nearly every state requires drivers to have liability insurance, and there are plenty of car insurance options if you don't have good credit. According to the Insurance Information Institute (III), several studies have confirmed a high correlation between credit-based insurance rating and the relationship between claims and a person's premiums.
Because of this, in states where it's allowed, most auto insurance companies consider your credit rating when offering a policy quote. In some situations, car insurance companies may refuse to cover you or may be charging you unreasonably high prices because of your poor credit rating. This is how the credit-based insurance score and the FICO credit score compare, according to the National Association of Insurance Commissioners and FICO. However, if you're not among the lucky few, there's no way to know for sure how much your credit rating affects what you pay for car insurance.
The credit score you're familiar with, which you can check at any of the three major credit bureaus, isn't exactly what car insurance companies are looking for. If you're worried about getting expensive car insurance quotes due to a poor credit rating, another option to consider is telematic insurance. Unless you live in one of the four states listed above, car insurance companies are likely to look at your credit score when you apply for coverage. According to FICO, credit-based insurance models “are based on the study of millions of policies and billions of dollars in claim payments from national and regional insurance companies that represent major geographical areas and distribution systems.
If you live in one of those three states, the auto insurance company can't use your credit information to set your rate. A credit-based insurance score allows insurers to quote the fairest and most appropriate rate for each customer. The reason credit is important when it comes to car insurance is because drivers with bad credit are considered to be at greater risk of insuring. States require auto insurance companies to hire a portion of high-risk drivers, including people with very bad credit.
Auto insurance companies use gentle inquiries to check the credit ratings of potential policyholders.