Common Misconceptions About Car Insurance and Credit

Car insurance is a must-have for most drivers, and your credit can play a surprising role in how much you pay for that coverage. Let’s address some common misconceptions about car insurance and credit and how it truly affects your coverage options and what you pay.

Car Insurance Rates are Solely Based on Credit Score

Some car owners believe that their car insurance rates are solely dictated by their credit score. While it’s true that credit does play a significant role, it’s not the only determinant. Insurers use complex algorithms that consider a myriad of factors, such as your driving record, the type of car you drive, your location, and even your age. Credit history is just one piece of a larger puzzle.

No Credit History Means High Insurance Premiums

For drivers with little or no credit history, it’s common to think car insurance premiums will be out of bounds. The reality is a bit more nuanced. While it’s true that the absence of a credit history can be a red flag for some insurers, many will still be willing to work with you.

In the event that you have no credit score at all, you might be able to qualify for a “no-credit-check” car insurance policy. These policies typically don’t base your premium on your credit history, making them a valuable option for those just starting out with building their credit.

Credit Checks for Car Insurance Negatively Affect Credit Score

It’s a myth that checking your credit for car insurance hurts your credit score. This is because credit checks for the purpose of insurance are typically soft inquiries, which don’t affect your credit like hard inquiries do, such as when applying for a loan or additional credit. Soft inquiries aren’t visible to lenders, so there’s no need to worry about your credit taking a hit when you shop around for the best insurance deal.

Credit Score Doesn’t Affect Claims and Coverage

Another common misconception about car insurance and credit is that once you have insurance, your credit score is irrelevant. In reality, your credit score can continue to affect your coverage and claims in certain states. Some insurers may look at your score when considering claims or underwriting a new policy.

For example, in the case of a not-at-fault accident, a good credit score might mean your rates won’t be affected as severely as if your score were lower. Always be aware of how your credit report can intersect with your insurance coverage and be proactive in understanding your insurer’s policies.

Car insurance can be complex, especially when it comes to the impact on your credit score. By being informed and asking the right questions, you can ensure you’re not overpaying for your coverage. And, speaking of finding the best deals, if you don’t own a car but still need reliable coverage, consider looking into Serenity Group’s affordable non-owner car insurance, designed to provide you with the coverage you need at a price that suits your circumstances.