Ever wonder how insurance companies determine the rates for your auto insurance? Although algorithms and other mathematical computations generally aren’t made publicly available, you can effectively estimate factors that determine your rate by understanding risks, which will help you lower the cost of your car insurance. The following four factors allow insurance companies to determine the risk you present, whether low or high. 

Driving History 
 
As the old saying goes, “past behaviors are a great predictor of future behaviors,” and most insurance companies agree. Using your driving history, insurance companies determine whether you are a potential risk, one that will result in a financial loss. If you are, then the cost to provide you with insurance will be higher. Individuals with a safe driving record pay less for their insurance since they have proven low-risk driving behaviors.  

Pro Tip: Taking a driver’s education or safety course can help you save money by helping you improve your driving skills. 

Age 
 
Younger individuals will typically be considered a higher risk for insurance companies, primarily because they have little experience driving. As they age and gain more experience driving, their insurance costs can decrease. For most people, the magic age that results in a decrease in insurance costs is 25.  

Pro Tip: For new, inexperienced drivers, reducing other risks can help you save money until you reach driving maturity, which often reduces your car insurance rates. 

Credit Rating 
 
Used by many companies to glean insight as to who you are, your credit rating helps insurance companies determine whether you will be a financial risk to them. Typically, individuals with lower credit ratings take risks in life, which may ultimately affect driving decisions they make while behind the wheel.  

Pro Tip: Improving your credit rating by paying your bills on time can help you reduce the amount you pay for car insurance each month. 

Where You Live 
 
Living in neighborhoods with higher crime rates can increase the premium you pay for auto insurance. Since auto theft tends to happen more often in these neighborhoods, the possibility of your car being stolen or vandalized factors into an increased rate for your auto insurance.  

Pro Tip: Protect your car by storing it in a garage or using anti-theft devices to secure your car when it is not in use. 

Although you cannot change what factors insurance companies use to determine your insurance rates, you can improve how they see you by lowering your insurance risks.