A common misconception is that all you need is a good driving record to get a low rate on auto insurance. In reality, car insurance providers consider a number of factors when calculating your insurance premiums, and your credit history is one of them. Even if you have a pristine driving record, you may still be charged more for coverage if your credit score is poor. Here's what you need to know about this issue.

Credit Score vs. Credit Based Insurance Score

First, it's important to establish the difference between a credit score and a credit-based insurance score. Both scores use the same information found in your credit profile. However, credit scores are calculated to predict how likely you are to pay your bills, while credit-based insurance scores are calculated to predict how likely you are to get into an accident and file a claim. In both cases, protected information such as your ethnicity, religion, and disability is not considered when working out the scores.

Some credit monitoring services will provide you with your credit-based insurance score along with your standard credit score, so you can see how you rate.

Why Credit Card Companies Use Credit Scores

Insurance companies are highly concerned with managing risks, and a credit-based insurance score is one tool they use to determine which policyholders have a higher risk of filing insurance claims. According to studies conducted by the Federal Trade Commission and the University of Texas, a person's credit score is a reliable predictor of whether or not the individual will incur insurance losses. For instance, the University of Texas found those with the lowest scores incurred an average loss of $918 while those with the highest scores had an average of $558 in losses.

Unfortunately for those who have bad credit scores, use of this tool typically results in being charged higher premiums for auto insurance.

Factors That Affect Your Credit-Based Insurance Score

The factors that influence your credit-based insurance score are the same ones that affects your regular credit score. The calculation will consider:

• Payment history
• Amount of credit used in relation to credit limit
• The amount of overall credit available
• The age of your credit profile
• Whether or not you have accounts in collections
• The number of new accounts opened recently
• The number of credit inquiries made by other companies

Exactly how much weight is given to each item is unknown. In general, though, if your regular credit score is high then it's highly likely that your credit-based insurance score will be high as well.

It's important to understand, though, that a credit-based insurance score is only one factor insurance companies consider when calculating your premiums. Providers will also look at:

• Driving history
• The type of vehicle being insured
• Where you live
• How often and the distance you drive
• Age
• Sex/Gender
• Marital status

So while your insurance premium may be higher than someone who has a better credit-based insurance score, it may be lower than a person who has DUIs on his or her driving record.

Reducing the Cost of Insurance

Repairing your credit can result in a reduction in your insurance premiums. If you're trying to save money on your car insurance right now, however, there are a couple of things you can do to reduce the cost of your premiums:

• Inquire about available discounts such as those for insuring multiple cars or having multiple insurance policies with the same company.
• Opt for a higher deductible. The higher your deductible, the lower your risk to the insurance company. Be care to not to set your deductible too high, though, or you may find yourself in worse financial trouble if you get into an accident.
• Streamline your policy by dropping coverage you may not need. For instance, if you drive an older model car, you may not need collision insurance because the value of the car is too low.

For more information about how your credit score affects your insurance premiums, connect with an auto insurance company in person or online at a site like http://www.collinginsurance.com/.