How Your Credit Score Affects The Premium

Updated on 2/25/19
Re-posted on 7/16/20

Many auto insurance companies use a credit insurance risk score to determine how likely you are to cost them more. Some refer to it as “soft hit”, also called “credit based scoring”. This is NOT the same as a credit score used by lending institutions.

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How Auto Insurance Companies Rate You

Each auto insurance company will use their own factors to determine rate. The reason a “credit based scoring system” is used is because the auto insurance companies understand risk better than most.  To them, individuals that are more established, live their lives responsibly and without risky behaviors and have years of good credit history, usually will have a lower overall “claims” risk. The people who have been responsible in paying their bills on time and have higher credit scores tend to have fewer insurance claims, and carry more insurance coverage, more so than those that don’t have these factors.

Most auto insurance companies in NV do use some form of credit based scoring to determine rate, along with many other factors. There are a few insurance companies that do not. Some states do not allow this check. Others do. Nevada does.

This credit based scoring does play a factor with your auto insurance rate that is determined in “underwriting”. An insurance company’s underwriting department looks at prior auto accidents and claims, along with a DMV check. The Department of Motor Vehicles report looks for tickets you’ve had in the past as well as your driving history. All these factors can all play into your actual price. Sometimes having the State Minimum liability insurance also plays a factor. If you carry the bare bones state minimum as opposed to a larger liability, for example: 25/50/20 versus 250/500/250, this is not helpful if you are looking to keep your insurance rates low as this may be considered a higher risk behavior. Overall you pay less for the 25/50/20 because it is less coverage, but overall “risk” is factored.

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Your Auto Insurance Rate May Have Nothing To Do With Your Driving

In Nevada, auto insurance companies can use 3rd party companies such as the Fair Isaac Corporation, Lexis Nexis, and TransUnion to assist insurance companies in determining risk, which in turn affects rate. They use a numerical score to determine risk.

Factors that can affect your auto insurance premium you’ll want to be conscientious of are:

♦ Late payments, credit history length, having high balances on your credit cards, bankruptcies, foreclosures, tax liens, if you’ve opened a few accounts recently, or had a number of recent credit checks ran, and others.

Different auto insurance companies weigh different factors of your credit based scoring differently. Meaning that one insurance company may look heavily at credit history, and another may focus on past driving experience and whether the driver has been responsible and kept insurance continuously. It’s important to understand that you must be “rated” on a policy. This means that you have always been named on your own auto policy, or a parent’s policy, a relative, someone’s policy. Not just driving “with permission”.

The department of insurance has a great webpage describing auto insurance credit checks at: Doi.nv.gov/consumers/credit-scoring-FAQs/

Related Articles:

Why Did My Auto Insurance Company Check My Credit?

13 Rating Factors That Affect Your Auto Insurance Price

Are You a High Risk Driver?

Does Lying To Your Auto Insurance Company Get You A Better Rate?

Read More: Auto Insurance in Las Vegas, Nevada

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DISCLAIMER: It is important to note that the information contained herein is made general for the purpose of explanation.  You should consult your policy for exclusions or other language that may alter your policy.

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