As vehicle insurance premiums rise, here’s why your credit score may be partially to blame

As vehicle insurance premiums rise, here’s why your credit score may be partially to blame.

If you’ve noticed that the cost of your auto insurance policy has increased, you’re not alone. Inflation is partly to blame, but your credit score may also play a factor.

According to Bankrate, the national average cost of full-coverage vehicle insurance has increased to $2,543 per year. This is increasing from $1,771 in 2022 and $2,014 in 2023.

According to the personal finance website, the current national average accounts for 3.41% of median household income, at a time when many Americans are still dealing with rising prices.

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“We saw a 26% increase between last year and this year,” said Shannon Martin of Bankrate.

If you’ve noticed that the cost of your auto insurance policy has gone up, you’re not alone. Inflation is partly to blame, but your credit score could also play a role.

According to Bankrate, the national average price for full-coverage vehicle insurance has risen to $2,543 per year. This will increase from $1,771 in 2022 to $2,014 in 2023.

According to the personal finance website, the current national average accounts for 3.41% of median family income, but many Americans continue to face escalating prices.

“We saw a 26% increase between last year and this year,” said Shannon Martin from Bankrate.

She explained that the price increase was caused by a series of events that occurred in a short period of time.

Martin said that high inflation that began in 2020 drove up the cost of automobiles and parts, as well as an increase in extreme weather claims. There was also a 10% increase in car accident fatalities in 2021.

“Insurance companies are trying to recoup those losses, and then project and estimate what the future risk will be,” he said.

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Car insurance rates vary across the country. For example, Detroit drivers will face the highest average annual expense, $5,687, or 7.98% of median household income.

Other cities on Bankrate’s list of the top five most expensive cities for vehicle insurance include Las Vegas, Miami, Philadelphia, and Tampa.

Seattle is the least expensive city for full-coverage vehicle insurance, with drivers spending an average of $1,759 per year, or 1.65% of the typical family income.

Other cities ranked as the least costly include Boston, Minneapolis, Portland, and Washington, D.C.

How credit score affects vehicle insurance premiums.

Regardless of location, certain occurrences will result in higher vehicle insurance rates.

According to Bankrate, the most common culprit is adding a young driver to your policy, which may result in an additional $2,878 in average annual premiums, surpassing even a drunk driving conviction, which can add an average of $2,247.

If your credit score falls from good to poor, your average annual charges can increase by $1,795.

Credit can have a greater impact than getting a speeding ticket, which can add $523 to average yearly rates, or a delay in motor insurance coverage, which can result in a $276 increase.

The good news is that you can take efforts as a driver to help offset some of these costs.

Martin pointed out that not all states use credit as a rating component when determining the cost of your auto insurance coverage. However, most do.

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If your credit score is low enough to effect your vehicle insurance prices, you most certainly have recent delinquencies or other outstanding obligations, according to Bruce McClary, senior vice president of the National Foundation for Credit Counseling.

“Try to make progress towards improving your score and improving your overall financial well-being to help get things back on track,” he advised.

Lower credit scores can lead to higher borrowing fees for credit cards, vehicle loans, and mortgages.

Paying off your balances and invoices on schedule will help you boost your credit score.

McClary also suggested that you review your credit record for any inaccuracies that could lower your rating. Consumers can now check their credit report from each of the three major credit reporting agencies every week by going to AnnualCreditReport.com.

If you successfully boost your credit score, mention the change to your auto insurer so that your policy can be modified, according to Martin.

Other strategies to minimize your payments

According to Martin, if you have a teen driver, you can have him or her attend an extra driver training class, which can result in an additional reduction on your auto insurance.

Students with a particular grade point average in school may also be eligible for discounts, according to AAA, a travel and insurance company.

Adult drivers who complete driving instruction courses or programs may also be eligible for insurance discounts.

According to AAA, drivers can save money by bundling insurance for their vehicles, homes, and other possessions.

They may also save money by paying for the coverage in full up front, rather than in installments, which can incur expenses.

Driving less miles may also lead to vehicle insurance discounts.

In addition, increasing the deductible on your auto policy, or the amount you must pay upfront in the event of a claim, may reduce the cost of your coverage. Before you do that, make sure you have enough money set aside.

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