Auto Insurance and Your Credit Report
Most of us are aware that our driving history impacts not only our ability to get auto insurance but the rates we pay as well. These days there is also another and equally critical factor insurance companies use, our credit report.
Insurance companies consider your credit report and credit score as a valuable tool to assess the risk in insuring you. A higher credit score reflects responsibility and makes it less likely you will make claims against your policy.
A poor credit score may disqualify you from getting insurance with some companies. More likely it will put you into an upper rate category with higher premiums for the duration of that policy.
A recent study by the Federal Trade Commission concluded that ‘Credit based insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums.’
According to a recent industry survey over 90% of the top auto insurance companies usecredit data to evaluate new and renewing clients. Almost all insurance applications now require you give permission to check your credit report. The insurance company will request a report from one or more of the credit reporting bureaus; Equifax, Experian
The score used is created by a company named Fair Isaac and Company and is referred to by different names at the different credit bureaus; InScore® at Equifax, the Experian/Fair Isaac Insurance Score at Experian, and the Fair Isaac Insurance Risk Score® at TransUnion.
Credit scores range from 300 to 850 with the higher score being best. If your score is below 620 to 650, you may have trouble getting insurance or may have to pay a higher premium.
You can take steps to improve your score
- Payment history: One of the largest factors is your account payment history. Delinquent payments and collections have a very negative effect on your score. While a steady record of on-time payments, the longer the better, shows responsibility.
- Amounts owed: You will be judged on the number, type and balances of accounts you already have. Try to keep balances low on credit cards and other revolving type accounts. Do not close unused credit card accounts and do not open too many new ones.
- Length of credit history: Nothing you can do to improve this other than wait, the longer your credit history, the better.
There are also consumer benefits to insurance scoring;
- Lower premiums
good insurance score can show you are responsible and therefore qualify
you for lower rates.
- Get insured faster
Insurance scoring can be obtained almost instantly allowing policies to be approved quickly. This also helps promote internet access to insurance for the ultimate in shopping around.
- Impartial decision making
Insurance scoring is intended to take gender, race, nationality, religion and other factors out of the consideration process and focus on the facts related to your insurance risk.
- More insurance products
Using insurance scoring has allowed more companies to offer more products to a wider audience. This has lead to more competition which lowers rates overall and gives greater choices to us all.
The practice of using your credit report and insurance scoring looks like it is here to stay and will likely be used by all companies in the near future. Some industry studies even claim that credit based insurance scores are a better predictor of future claims than driving records.
Scott Lawrence – EzineArticles.com Expert Author
July 1st, 2007
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