Credit Score and Car Insurance Premiums - What Every Driver Should Know
Credit scores as a rating factor have been used by insurance companies for a long time. Studies show that credit ratings are a strong indicator of insurance risks. The ratings are used to determine not only the insurance premium, but also the payment options. Therefore, the credit rating of a person has a huge influence on the insurance premium that a person pays.
The average credit score is between 600 to 650 points and anything above 700 is considered good.
Auto insurance companies use credit ratings to quote their rates more than any other insurance industry.
Insurance companies calculate the risk associated with a person based on his credit ratings. Customers with low risk are rewarded with lower premiums as the risk associated with them is considerably low.
A study has revealed that almost 90% of the top 100 auto insurance companies consider credit scores while giving out new policies.
Every company has a unique combination of factors and calculation. Thus, even though different companies use the same overall factors, they may have entirely different scores for the same individual. Credit rating is one of the main deciding factors when placing a person in high risk, average or preferred categories. It is a good idea to work on your credit report, and get rid of the negative points.
The use of credit ratings to determine insurance risk has been a point of debate between consumers and insurance brokers for a long time. The court has laid down some guidelines and restrictions on the use of credit as a rating factor. When determining the credit score, insurance companies cannot consider the amount of unused available credit, debt due to the purchase of new house or vehicle, or the types of debit or credit card owned. Also, insurance companies cannot punish someone for having inadequate credit history. Some other factors are also considered to create an insurance rating.
Each company has its own guidelines for deciding the premium based on credit history.
The process includes going through collections against your account, late payments, credit histories, bankruptcies, outstanding debts or other deviations.
There are some ways to improve your insurance credit score. You can attempt to reduce your debt and improve your overall payment history. A good start is using credit card responsibly. If you believe that your insurance credit rating is being used inaccurately, then speak with your insurance agent or a company representative for assistance and details. Get a copy of your credit report every year and go through it personally to ensure there are any records that need to be changed or updated. Most credit scoring agency make a process available to update your credit records.