Having a Good Credit Score Critical to Buying a Car AND Buying Insurance

By: Edward L. Blais, JD, CIC

President, Blais Insurance

Having a good credit score is essential to getting a loan to buy a new car. 

Most buyers understand the general importance of having a good credit record in order to get a loan. Having a proven track record of paying your bills on time is essential to having a healthy credit score. That tells lenders that you will be able to pay back their loan. That’s obviously a pretty important perquisite for convincing them to approve your application for financing. 

For example, just 38.3 percent of loans in the third quarter of 2018 were granted to borrowers who had credit scores of 660 or less. The average score for car loans was 661, according to an Experian report cited by Credit Karma. 

But even if you are lucky enough to beat the odds and get a loan, your bad credit can still cause harm. The same Experian data shows that lower credit-score buyers have to pay higher interest rates—7.52 to 14.41 percent for new cars and 10.34 to 19.98 for used ones. That comparable rates for buyers with good credit were: 3.68 percent to 4.56 percent and 4.34 percent to 5.97 percent. 

Those percentage differences will add up to thousands of dollars over the life of the loan. 

Plus, it’s not just the loan payments. Your credit score also impacts how much you have to pay on car insurance. A company called FICO has broken down the different ways your credit affects your insurance score, according to Credit Karma: 

• Payment history (roughly 40%)
• Total debt (roughly 30%)
• Length of credit history (roughly 15%)
• Pursuit of new credit (roughly 10%)
• Mix of credit (roughly 5%)

Your credit history can be helpful in one particular area of importance to insurance companies: predicting the likelihood of accidents and future claims. According to statistics, people with higher credit scores typically experience fewer accidents than those with lower credit scores, which saves the insurance company money.

The bottom line: it pays to pay your bills on time. And, in the case of car insurance, good credit benefits you twice—not just in getting a loan, but also in obtaining good insurance rates. For more insurance on auto loans call Blais Insurance at 401-725-0070 to receive a fast and hassle-free quote.