Improved Your Credit Score? Tell Your Car Insurance Company

If you’ve improved your credit in the last three years, you might want to ask your insurers to rerun your credit. It might save you some money. Jeff writes:

I emailed you about 2 weeks ago complaining that Progressive Insurance only runs it’s credit check every 3 years. Knowing my credit history improved, I thought this unfair and called them.

Since them I received an updated bill and it was $67.50 cheaper (for 6 months)–just based on a new credit check! Obviously if readers credit history worsens, wouldn’t recommend an updated credit check, but for most people, if you don’t ask for the current credit check, you could be losing dollars.

Good tip, Jeff. Insurers compare your credit score to the scores of their other clients and use it as a way to predict how likely you are to have an accident. Apparently, people with similar credit scores have similar driving habits. For more info on how Progressive uses this information, click here. —MEGHANN MARCO

(Photo:foundphotoslj)

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  1. timmus says:

    A credit check? Good grief. This is good reason to NOT use Progressive… as if someone starts doing identity theft on me or Citibank starts secretly posting my payments late (as in that class action suit), then I get screwed for no good reason.

  2. hellinmyeyes says:

    This happened with me when I went to State Farm to discuss getting a new car. She ran my credit score to determine what my rates would be for the theoretical new car, and (as it turns out) this reduced the rates on my then-current auto as well. The rate had gone down about 30%. She said this was because my credit improved significantly interim.

    I noticed this happens when I call CapitalOne about anything in my account. If I call to get a missing card replaced or to have my address changed, something gets touched in my account, and either my credit limit goes up or my interest rate goes down. It’s weird, but I hardly can complain.

    It seems with a lot of businesses that if you periodically “touch” your account, they’ll re-run some checks for you, and hopefully that leads to better rates. Of course if you call for some services, you might find that the rate for those services went up since the last time you called… :-

  3. chrisgoh says:

    “Apparently, people with similar credit scores have similar driving habits.”

    Actually, I thought the rationale was that people with good credit would have less incentive to commit fraud and therefore be a better risk.

    However, I can also certainly see the logic in that if you are careful with your money, you are more likely to be careful with your car.

  4. VG10 says:

    this most likely will result in a hard inq on your credit report.

  5. hoot550 says:

    State Farm does this too. I think it’s a gross misuse of credit — they’re not extending me anything. In fact, I’m paying IN ADVANCE for a product. It seems like before long, groceries are going to cost more unless you have perfect credit. But that’s another story.

    I told State Farm that since they’re taking my credit into account when providing insurance, they should take my driving record into account when providing a loan. They didn’t see how it was related. I told them that I didn’t see how credit was related to someone’s driving record, and they assured me that it was. I asked for some kind of reference, and they could not provide any. So I guess it’s relevant because they say so.

  6. d0x says:

    Credit Check on insurance is CRAP. My credit score sucks, but I always pay my insurance on time so thats no issue. My driving record is PERFECT, you wont find many 25 year old guys with a perfect driving record yet I end up paying more because I messed up some bills a couple years ago…unfair and bs!

  7. iMike says:

    @timmus: Substantially all insurers use credit for risk rating/premium calculation. A couple of states (CA I believe is one) don’t permit this use of credit.

  8. iMike says:

    @hoot550: They can show a correlation between credit score and loss experience. Lower credit –> higher loss experience.

  9. mac-phisto says:

    it’s in your best interest to shop every few years for insurance. insurance cos. will rarely move you into a lower risk pool even when they know you qualify. also, know which insurance agencies are best for your needs. for example, if you are a 22-yr old with a few nicks on your record, allstate is probably not going to be the best choice. conversely, if you are 45 & have never had an accident/ticket in your life, geico is probably not going to give you the best rate.

  10. roamer1 says:

    @VG10: The standard FICO model doesn’t consider inquiries by insurance companies…and even if it did, a review by an insurer with which one already does business should be treated as an “account review” inquiry (because of the pre-existing relationship) and not a standard hard inquiry.

    I have insurance with Progressive, and when I got the policy last year, they said my insurance score (using their proprietary model) was better than nearly 90% of the people who have gotten quotes with them — even though my FICO scores aren’t anything spectacular. YMMV.

  11. FLConsumer says:

    Progressive looks at more than just the credit score. Progressive gave me a rather high rate despite a very desirable credit rating and good driving record. They also look at the sources of credit and apparently I didn’t have enough credit cards to keep them happy.

    This is despite having 1 Visa card I’ve had for quite some time, with a credit limit that’s high enough to buy a luxury car on there.

  12. mac-phisto says:

    @FLConsumer: what up. in terms of insurance, progressive & geico are like the subprime industry. they make money by providing an “affordable” product to ppl that would normally pay out the nose for insurance. if your credit is good & your driving record is good (& your 26+), check out state farm & allstate. i’m currently w/ liberty mutual & they are great – beat everyone else by 15%.

  13. MadMolecule says:

    That photo is completely awesome.

  14. AndyFromTucson says:

    I think a better tip is to shop around and get quotes from other insurance companies every few years. Different insurance companies will charge widely varying rates (easily up to hundreds of dollars per 6 months) to the same driver, and the company with the best rates one year could have one of the worst a couple years later.

    The insurance companies use credit scores to help establish rates because they have statistically established that on average people with better credit have a better claims history. No one claims to understand why, its just a reliable statistical correlation, and you can find papers on it on the web.

  15. Dabo says:

    Very good point. It’s true that insurance (and many other) companies check your credit on a regular basis, and set their rates according to your score. For tips on how to improve your credit in the first place, check out this useful info site: http://www.mycreditsecurity.com/credit-report/your-credit/

  16. Dhydier says:

    I would like to see just one study that shows a correlation between credit score and driving habits. What the insurance companies are doing here amounts to discrimination.