Insurance companies base driver's premiums off of risk assessment, the vehicle, and where the driver lives. Insurance companies use a wide variety of factors in the mix of determining the risk of a driver. Insurance companies study the relationship between measurable factors and how likely a potential customer is to file a claim. In recent years, Insurance companies have begun to study the relationship between credit and auto insurance claims.

Insurance company researchers found a correlation between the credit score and the likelihood a person will cost the insurance company money. Researchers found consumers with lower credit scores more likely to file claims, file exaggerated claims, and even commit insurance fraud. As with the other statistics insurance companies use, credit scores help the insurance companies assess the risk level of a potential customer. Insurance company researchers found people with poor credit scores, below 600, tend to file more claims.

Credit score also affects how an insurance company allows you to pay for your policy. Customers with very poor credit scores may be required to pay the entire premium for the six month policy up front. Customers with poor credit scores sometimes will not qualify for monthly billing, or may need to pay a large percentage of the policy up front and the remainder monthly.

How do credit ratings affect auto insurance premiums? For most companies and states credit scores represent a major portion of the risk assessment. However, each state enacted different laws that may affect how credit scores are used for auto insurance risk assessment. Some companies still do not use credit when determining a driver's risk.