Merely four states (California, Massachusetts, Hawaii and Michigan) prohibit car insurance companies from using drivers’ credit scores to determine insurance rates. For the rest of us, credit scores are one of the major determining factors in the insurance premiums we pay.

Auto insurance companies, operating under the belief that policyholders with subpar credit ratings are more likely to file claims, have been increasing the cost of premiums in response to dips in drivers’ credit scores.

It’s a controversial yet widespread practice. As one report found, if an individual’s credit score falls from “good” to “poor,” that could potentially increase their insurance cost by almost $1,800 from year to year.

Traditionally, some might expect factors such as driving experience, employment, marital status and vehicle type to be the primary considerations for insurance rate assessments; instead, the auto insurance market has been placing greater importance on credit scores.

If you noticed your auto insurance cost on the rise, you’re certainly not alone. The need for proactive management of one’s credit profile to maintain favorable insurance rates cannot be overlooked.

A Brief Overview Of Insurance Scores

According to the Insurance Information Institute (III), the way individuals manage their financial affairs is a reliable indicator of how likely they are to file claims, which impacts their riskiness as policyholders. This metric of riskiness is termed an “insurance score.”