How Credit is Used but Auto Insurance Companies
When calculating car insurance premum I’m sure you are aware of all the different factors insurance companies use to generate that quote. But one of the main factors used in generating these quotes is credit. In most cases, drivers find this use of credit to be unfair and quite angering since it is one thing that does not reflect your driving habits. So they ask themselves, why is this being used to determine my car insurance rate?
If you really think about it there are some reasons behind why auto insurance company credit as one method to determine your insurance premium. Auto insurance company at actually argue saying that this method is one way to help you save money. How do you ask? It allows them to determine which person is on top of their payments and How likely they are to pay their insurance premiums on time. Now if you were to compare this to a driver it doesn’t pay their bills on time or even have a great credit score, they’ll be able to shift the higher cost of them. So the reality of it is if you’re on top of your credit score, you’ll be able to benefit from your insurance company by saving a little bit each month.
Studies actually show the people with higher credit scores are not likely to file an insurance claim, while people with lower credit scores are likely to file an insurance claim. This is based on the special credit score used on an insurance basis that was developed in the 1990s.
How Poor Credit Can Increase Your Insurance Premium
For those insurance companies that use credit to determine your insurance premium, they necessarily don’t have to explicitly show that there is a reason lower credit scores will result in a person filing a claim over one that has a higher score, they only have to show there is a relation between these two variables.
The FICO company speculates the following “individuals who closely and cautiously monitor and manage their finances tend to also take better care of their cars and homes and are, generally, more diligent in their risk management habits.”
What Affects Does it Have on You?
Because a lot of drivers feel like this is an unjustified way to determine your insurance premium it doesn’t necessarily mean that I have a negative effect on you. Study show about 66 percent of the people has lower auto insurance rates when they factor in their credit score.
Like all the other insurance companies, there are more factors including in the premium. Think such as your location or how long you been driving. These factors actually way more into your premium than your actual credit score does.
There are some tips that you can take in reduce your insurance premium if your auto insurance company factors in your credit score. For example:
- Request your most up-to-date credit report from one of the main credit bureaus
- By doing this you’ll be able to review your credit report and see if it is correct. If you see discrepancies you can have them removed to increase your overall credit score to help with your insurance premium.