is either what haunts every decision you make or opens doors that would otherwise be closed. It can affect everything from where you live to what you drive.

Some may wonder why

car insurance companies

care, however, and how much it really affects what you pay for your premiums. Insurance companies believe it's more than fair to use credit scores to set insurance rates, but here's the reason why.

Insurance companies have been checking credit scores since the ‘90s.

How long have car insurance companies checked credit scores?

It may come as a bit of a surprise that car insurance companies

check credit scores

to determine your rates. Insurance companies don't exactly advertise it, but they've been checking out credit scores for about 30 years.

It all began in the 1990s, according to

Forbes

. As it turns out, there was a rather good reason for the change. Insurance companies realized that drivers with higher scores are less likely to file a claim.

A 2007 study by the Federal Trade Commission is frequently cited to point out the connection between insurance scores and claims. The study said that credit-based insurance scores are “effective predictors of risk” for insurers.

So drivers with poor credit will see higher rates to account for higher risk. Insurance companies think this is fair since higher costs will be shifted to riskier drivers.

It’s important to note that your traditional credit score isn't what companies use to determine your rate.

How do insurance companies determine your credit score?

MORE: How Car Insurance Companies Determine Insurance Rates

While checking your traditional credit score is part of the process, it's not what determines how much you'll end up paying for insurance. To break it down, there's your regular

FICO score

, and then your FICO credit-based insurance score.

Insurance companies weigh the factors that go into your score differently. For example, your past payment history counts for 35% of your FICO score. For the FICO insurance score, it's 40%.

Your current level of debt is weighted at 30% for both scores. It’s also the same for the length of credit history at 15% and new credit/pursuit of new credit at 10%. The types of credit used represents 10% for your FICO score and only 5% for the insurance score.

Other differences include the fact that FICO can't score you on factors such as age, gender, address, marital status, and occupation. Insurance companies, on the other hand, will use these factors as long as it's allowed in your state.

What else affects your car insurance rates?

MORE:

Oregon Working to Ban This Controversial Car Insurance Practice

One of the biggest factors that impact your rates is the type of car you drive. For example, cars with high safety ratings often have lower insurance rates. Bigger vehicles might be more expensive to insure, since you may be more likely to get into an accident.

Another factor that will affect your rates is where you live. Some states like California, Hawaii, and Massachusetts don't allow the use of insurance credit scores when determining rates. Other states like Washington and Michigan put some restrictions on the use of insurance scores.

If you're not sure if your insurance rates are higher than others due to your credit score, you can always ask your agent. By law, they’re required to tell you how your rate is affected by your credit score, and which credit bureau they got the information from.

If there’s something inaccurate with the report from your insurance company, you can get an updated report, and this could help get you a lower rate. You can also take steps to improve your credit score, which can also help get you a lower rate when it's time to review your policy.

When you're ready to shop around for a better insurance rate, sign up with

Jerry

. The free app takes care of comparing rates from 50 name-brand companies, so you get the best deal without any long forms or phone calls.

Car Insurance Credit Score