Most of us are familiar with a credit score and what it’s used for- and while we may not know the exact number, we understand how it influences our purchasing and other activities. But what about Texas Car Insurance rates? Does a credit score impact the monthly premium we pay to insure our vehicle? You might be surprised to learn that your credit score- positive or negative- plays a critical role in determining  what you pay for car insurance in Texas

Traditional Credit Scores Versus Credit Based Insurance Scores

540 or 720, what does it really mean? Your credit score, that number that identifies your financial behavior is created by a combination of your job history, income, and personal credit score. This is the number used by lending institutions to determine how likely it is you will repay a loan. Car insurance  companies use a credit based insurance score, but it’s a little different because it doesn’t factor in job, income history or gender. Car insurance companies use this score to determine how likely it is that you will file an insurance claim- and cost them money.

Determining Risk

The reason why car insurance companies use your credit score is to help them identify the risk factor you pose to them. In other words, the higher risk you pose to the company, the higher your rates. On the other hand, if you present little risk, your rate will most likely be lower.  The logic is that the better your credit score, the less likely it is you will file a claim and cost them money. Interestingly, in Massachusetts, Hawaii and California, the practice of using credit scores to determine risk has been banned and insurance companies in those states are not allowed to use your credit as a determining factor.

Other Variables

But before you get fixated on your credit score, remember, there are other factors that go into determining car insurance rates. Your driving history, including the number and frequency of accidents or tickets you’ve had over the years along with your marital status, age and other personal details are used in combination with your credit score to create a well rounded picture of you as a driver.

There is research to back up the claim that credit score is a good predictor of risk for Texas Car Insurance companies and as a predictor of accidents, it’s pretty accurate.  Believe it or not, folks with higher credit scores tend to have fewer accidents. And as far as the car insurance companies are concerned, as long as credit score is an effective predictor of risk, they will continue to use them to set your monthly premiums.