Most of us know how a credit score will affect our chances of getting a car loan or mortgage. What we don’t realize is how it can affect our ability to get car insurance. For people who don’t have any established credit or have poor credit, it can be difficult to get a quality insurance policy. It is possible, however, if you know what you are looking for and are willing to consider a few alternatives.

Why Credit Checks Are Used

Insurance companies look at your credit score to determine your potential liability. If you have a high credit score, it may mean you are very responsible when it comes to your financial security. The more responsible you are with your money, the more responsible you are likely to be with your vehicle. It also means that you will be less likely to default on your insurance premiums. Companies often consider this a “credibility factor.” While having a poor credit may not keep you from getting a quality policy, you will have to pay more for your coverage.

It Depends on Your State

Most states will allow insurance companies to use your credit score to determine your car insurance premiums. California, Hawaii, Massachusetts, and Washington have laws against the use of your credit score to determine your level of risk when it comes to car insurance. Other states are more likely to use what method they believe works best. For those who have no credit or bad credit, it can lead to high premiums for lesser coverage. On the other hand, paying your premiums on time is a great way to improve your credit score. Either way, you can benefit if you look at things in a positive light. Work to improve your credit score, and you will win either way.

Usage-based Insurance as an Alternative to Credit-based Insurance

For individuals who want to avoid their credit score from being used, there are other options that they can use. Usage-based car insurance, for example, relies on information that is collected as you drive your vehicle from day to day. A small transponder is placed in your vehicle, and specific types of data are collected. This data can include speeding, hard-braking, phone use, and the number of miles driven each day.

By understanding a person’s driving habits, an insurance provider can offer a premium corresponding to their risk level. This type of insurance puts you back in control of your car insurance premiums. Many newer cars have this technology built-in which makes it easy for insurance companies to gain access to the information they need. Using this advanced technology gives your insurer an accurate depiction of your driving habits. Being a good driver is the best way to keep your premiums low.

Understanding the many ways that your credit score affects your life will make it a little easier for you to find more affordable rates when it comes to various types of car insurance. Contact our experts at Schwab Agency to find out how we can help you get a cheaper insurance rate if you have a low credit score. We have the answers you can count on to get your credit back on track.