Car Insurance and Your Credit Part 1
written by Credit-HQ ExpertWe all want to do all we can to bring our car insurance rates down. Things like how often you get a ticket and if you passed a driver’s safety course can do a lot toward that goal. But what car insurance companies don’t tell you is that there is another variable that you may have never thought about that has a huge impact on the rates you pay for insurance. It is common for auto insurance adjusters to use your credit score and history to decide if you are a risky a driver. It sounds strange but it is true.
The Auto Insurance Industry
The truth is that studies in how insurance is calculated actually reflect that almost all car insurance agencies use your credit information. Your credit data is factored into something called your “insurance risk score“. This score helps insurance planners predict statistically if you are one of the customers that would be most likely to put in a claim in their insurance policy. This, of course, is what they don’t want. The insurance risk score helps them decide whether to insure you at all.
The good news is the number of insurance companies that use the insurance risk score to figure your monthly premium payment is not as large. But your credit information does have a significant impact on how much your car insurance company is willing to work with you. While some states have laws that keep insurance companies from abusing the use of credit information, it is still quite common for even your current car insurance company to review your credit picture when it is time to calculate your premium.
Your Insurance Risk Scores
The entire process gets started when the car insurance company you are applying to gets permission from you to check your credit score. FCRA regulations require them to get your approval and its best to grant it because if you don’t, they may not insure you at all. Then the insurance company pulls your credit information the way other financial institutions do and that data is calculated into your insurance risk score.
If you check your credit history often, you will notice this inquiry but it won’t negatively impact your credit. Insurance companies use a method similar to how your credit score is derived to figure your credit score. Of course, you can always keep an eye on your credit score by requesting a free credit report from any of the three major credit agencies who must give it to you free twice a year. If you are getting hassled by a car insurance agency, check your score. It could be that if your credit score is below 650, you are considered a risk, which makes auto insurance companies less likely to want you for a customer.
Click here to see Part 2: Car Insurance and Your Credit Part 2
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