Why do insurance companies base car insurance premiums on credit ratings?
Studies show that people with lower credit scores are more likely to get into automobile accidents. It may not make sense to you, but since car insurance companies base rates on risk, a policyholder with a low credit score is a bigger risk, therefore more costly to insure. There are five factors insurance companies look at on your credit score to determine if you are stable as a credit user, or if you are at high risk, which means you are more likely to file a car insurance claim: 1. Your past payment history on credit cards 2. How much you owe 3. How long you have had credit 4. How many newly opened accounts you have 5. Types of credit established Each factor weighs differently on your credit score and insurance rating.
