Got bad credit? Chances are you're paying more for your car insurance than someone with a better credit rating. It's true. Auto insurance companies are now using consumer credit information to determine individual "insurance risk scores," for customers. For far too many of us, that means paying more for our car insurance than we may have before.

What's An Insurance Risk Score?

Insurance risk scores are scores derived from a variety of things that are used to look for stability. When using credit scores to determine insurance risk scores, the company cares more about how regularly a person pays their bills, than how much money they may owe. Used to identify consumers who are responsible and reliable, insurance companies cite that the more responsible someone is with their bills, the more responsible they'll be behind the wheel of their car and less likely to cause an accident. Allstate Insurance claims that a recent study conducted by their company found a direct correlation between people with high credit scores and people with fewer insurance claims.

Some companies, and agents, however, are only using the new score to determine insurance eligibility, not rates, until more research is completed. To find out how your insurance company is using your credit information to affect your insurance rates, contact your agent.

How Is Credit History Used To Determine Insurance Risk?

Insurance companies generally look at five things on a person's credit score to determine an insurer's insurance risk. They are:

1 - Past payment history; does the consumer regularly pay their bills on time, or are they often delinquent? Have they claimed bankruptcy or had liens placed against them? These can all affect your final insurance score.

2 - Amount of credit owed. How many accounts does a consumer hold? How close are they to their credit limit and what type of accounts are they?

3 - How long is their credit history. This looks at how long the consumer has had a credit history, and specific accounts

4 - New credit. This looks at the number and proportion of new accounts recently established.

5 - Types of credit. Does the consumer have credit cards, store credit, home loans, school loans, etc.

The bottom line is this: auto insurers are looking at things beyond your driving record to see what type of person you are. They want to see things that show a persons stability and sense of responsibility, in the hope that it will mean less accidents, less claims, and less cost for their insurance company in the long run.