How Does My Credit Score Affect My Car Insurance Rates?

Many people who are facing high premiums wonder what their credit rating has to do with their insurance rates. Several factors affect car insurance rates ranging from the age of the driver (or additional drivers), to their driving history and of course, their credit score. While the age and driving history are easier understood, the credit score is harder to explain. In the following information, we will explain the correlation between the two, how it affects the rate of coverage and provide information for how to get lower car insurance rates, even with bad credit.

According to a recent survey performed by Conning & Co., an insurance research firm based out of Hartford, CT, stated that 92% of insurance companies measure the credit information when underwriting a new policy. Insurance companies use a person’s credit history (along with several other factors including gender, home address and more) to calculate the determined risk and deliver a quote for a premium. According to several studies, there is a strong link between an individual’s potential loss of insurance coverage and their financial history. Therefore, the insurers believe that checking a consumer’s credit when applying for quote to more accurately calculate the risk of insuring the consumer.

The credit report includes information about the applicant that is helpful to insurance companies. The information includes information to identify the person (name, SSN, telephone number, past addresses and date of birth), public records about the person (bankruptcies, collections, foreclosures, garnishments, judgments and tax liens), the applicant’s credit history (history of completion or lack of completion of obligations to banks, finance companies, mortgage companies and retail stores) and any inquiries of the credit report by any other authorized parties such as, potential employers, other insurance companies and other promotions(particularly in the past two years).

There are two different types of scores used by insurance companies to determine the rate for car insurance: credit score and insurance score. The credit score is used by the insurance company to determine the ability of the consumer to pay other loans including credit cards, auto loans, and mortgages. However, the insurance score is other information that is used by the insurance company to determine the possible risk of the consumer making an insurance claim in the future.

When insurance companies check an applicant’s credit, several different variables are used to calculate an insurance score. This information includes the consumer’s available credit, history of late payments, duration of the person’s credit history, different types of credit used, public records, new applications for credit and any past due amounts, as well. Each insurance company may use a different scoring method to calculate credit variables, which is why a person requesting a quote will receive different prices from each company. However, certain factors are not considered when calculating the insurance score including, information about the person’s employment status (occupation, title, dates employed, salary, employer and past employment history) or personal information (gender, marital status, sexual orientation, age, race, color, religion or origin). In addition, insurance inquiries don’t have affect on the credit score, unlike, other types of inquiries, such as a creditor or lender inquiry (when a person applies for a credit card or loan) which lower the rating slightly.

To increase a person’s credit score, the first thing to do is to get a copy of their credit rating (FICO Score) and credit history. It’s important to visually check for any mistakes because errors are common on credit reports. The best way to get lower insurance rates is to improve the credit score in any possible way. In addition, individuals with a moderate score could use some improvement to their credit score. However, repairing credit takes time; therefore, it’s important to remember that long-term results should be expected before some results are noticeable.

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