Not everyone who is insured with a specific car insurance company will pay the same rates. Unlike a gym membership, car insurance rates are specific to the person who owns the policy. Premiums are calculated based on a number of factors, all of which are meant to determine how likely the insured person is to file a claim. People with the least risk of being in accidents pay the lowest insurance premiums, while those who are high risk of accidents have the highest premiums.

Several factors are involved in determining car insurance rates. The calculations are usually done by a computer; when your information is entered into the system, a complex algorithm is applied that determines how much to offer you for a quote. Because of this, many auto insurance companies won’t know exactly what has caused your rates to equal what they have. They will be able to give you a good idea of what you can work on to improve your premium costs, however.

The most obvious factor in rate calculations is a person’s driving history. If a person has a history of car accidents, tickets or driving-related crimes, he will pay more for his car insurance. He may not even be eligible for some types of policies. What many people do not realize, however, is that insurance rates also depend heavily on demographic information about a driver.

When you request a quote, an insurance company will ask you your age, marital status and other similar information. They will also run a credit check on you. People with good credit will pay lower premiums than those with poor credit.

Why does my credit score affect my car insurance rates?

There are two primary reasons that your credit score will play a role in determining your insurance premiums. First, your insurance company may be judging your reliability based on your credit report. If you have very poor credit, you may be financially irresponsible. You could make late payments or miss payments, or you could be unable to afford your premiums.

Missed payments can have catastrophic consequences in insurance. If you miss a payment, your coverage will lapse until the account is brought current again. If you happen to be involved in an accident during the time your coverage has lapsed, the accident will be denied and any damage you cause will be your responsibility to pay out of pocket. Not only is this unfortunate for all drivers involved in the collision, it is also an inconvenience to the insurance company.

Whenever a claim is reported on a lapsed policy, the insurance company must confirm that the policy is not in effect. They must use valuable man hours in verifying the policy, and may even do estimates on the damaged vehicle pending the policy investigation. All of this can take time and money away from an insurance company.

In addition to possible missed payments, car insurance companies also charge more for people with poor credit as they may be more likely to file claims. Bad credit doesn’t mean that a person is a bad driver; it does however mean that the person may not be able to finance minor repairs on his vehicle.

If a person has good finances, she will be less likely to file a claim for damage that’s just a few hundred dollars more than the deductible amount. People with poor credit are often perceived as living paycheck to paycheck and are less likely to have extra money saved to go toward car repairs.

Auto insurance companies are more likely to avoid a customer who makes multiple small claims over someone with a single large claim. Small claims use as much staffing time and man power as large claims, and if they are filed frequently they can lead to a policy being dropped.

While being judged for your credit score may not seem fair, car insurance companies are hardly the only individuals that do so. Whether you are buying insurance or renting an apartment, your credit score becomes synonymous with your reliability and financial health. Luckily, credit checks play a relatively small role in rate determinations with most insurance companies. As long as your driving history is good and you maintain a record clear of tickets and driving infractions, your rates should not be horribly affected by poor credit.