A credit score is a number that is calculated by the three credit bureaus. Each bureau calculates these scores differently, but they all represent the likelihood of you paying your bills on time. Credit scores are very important and oftentimes are a deciding factor when it comes to the approval of loans and credit cards. Your credit score will range between 300 to 850. The higher the score, the better.

What Is Auto Insurance?

Auto insurance coverage is a deal or contract made between you and an insurance company designed to protect you from large financial loss in the event of an accident. You and the insurance company would agree to a policy premium that can be paid monthly or, generally, every 6 months. Since you're paying a premium, if an accident does happen, you would only be paying the deductible outlined by your policy contract. The insurance company would cover the rest of the cost. The lower the deductible, the higher your premium will be. 

Why Do Credit Scores Affect Auto Insurance Coverage?

Auto insurance companies didn't begin using credit scores to determine rates until the 1990s. Even so, they don't directly use your credit score to determine your rate; they use your credit score to determine your insurance score. Auto insurance companies began using credit scores when they figured out that typically those with higher credit scores make fewer insurance claims, which is less money out of their pockets. Therefore, if you have low or bad credit, your auto insurance premium will be higher than someone with a higher score purely because you are seen as a risk.

What Is an Insurance Score?

When purchasing auto insurance, auto insurance companies use your credit score to determine an insurance score. To determine this, they use the same factors a normal FICO credit score is based on, but they adjust the weights of each factor slightly. Insurance scores also take into account your age, gender, marital status, occupation, and address, while regular credit scores do not. 

Does All Auto Insurance Use Credit Scores?

Most companies will use credit scores, however, there are a few states that this is actually banned in. The following states have banned using credit scores when it comes to auto insurance:

• California
• Hawaii
• Massachusetts

In Utah and Oregon, they can use your credit score to initially underwrite your policy, but they cannot use it again after that. Reach out to an auto insurance company to learn more.