Correlation Between Credit Score and Insurance Rate

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If policyholders do not reside in one of these areas, it is likely that auto insurance providers will use more complicated calculations to determine their premiums. Other factors, such as credit score and involvement in accidents or traffic violations, age, average annual miles, and eligibility for discounts, play a role in determining the premium. It is obvious that teens and seniors who have committed more violations must pay more. However, safer drivers in better age will pay less. However, the relationship between insurance rate, credit score, and insurance is complicated.

Statistical Relation

There has been at least one study that shows statistical correlation between auto insurers spending money on payouts and policyholders credit scores. The first study was conducted by the Bureau of Business Research at McCombs School of Business at The University of Texas at Austin in 2003. The Federal Trade Commission produced the second report in 2007.

* Texas’s first study involved over 175,000 randomly selected people. The study concluded that policyholders with lower credit scores were more likely to lose their insurance policies. The policyholders had a higher probability of losing their insurance policy. The study didn’t explain how insurance companies could have predicted losses from credit scores of consumers.

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* FTC study suggests that credit rate acts as a valid variable to predict risk. Credit score was a factor in determining price. In the event of bad credit rates, insurers could offer the best price to offset potential losses. The premiums for lower-risk customers were on average less expensive than those with higher risk. However, they paid more.

Important to note is that credit scores calculated by consumer reporting agencies can differ from those of insurers. Auto insurance companies have their own methods of calculating premium prices and reflect that. Each insurer may use a different method.

Fairness

Insurance companies will not analyze credit scores if they are not in the three states mentioned above. Credit rates are only important if they use applicant data to do thorough research. To determine if their premium rates can compensate for perils, insurers test and develop price calculation methods. Next, they will need to examine statistical evidences and reports to verify their theories.

Calculation methods cannot be used in open publications. Insurance companies won’t give details about how they came up with a specific premium price or number for each policyholder. Consumers can guess that insurers link carelessness behind the wheel and sloppiness in finance. The process is fair, regardless of whether or not it is fair.

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This method can only be used in extreme financial crises (e.g. 2008). Credit rates are bad for everyone, but this does not have any bearing on how people drive. Auto insurance is built on the ability to predict risks and decide if a consumer will make a profit or lose. Because compensations and payouts can change depending on the severity of road accidents, there is no clear profit margin. Fair or not, auto insurance prices are determined by credit scores. To reduce premium prices, consumers have no other choice than to improve their credit score.

Lower Premium Rate

The auto insurance industry is a profit-oriented business. Each company strives to make as much as possible. Competition is natural process, and this market characteristic forces them make good offers either by discounts or lower-than-competitors’ prices. This practice has been in place for many decades and is unlikely to change anytime soon. Insurance companies have different approaches to focusing on the credit score factor. It does not necessarily mean that other companies will focus too heavily on this factor.

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Non-standard market insurance providers don’t use credit scores to determine their rates. High-risk drivers with high credit scores may be eligible for non-standard auto coverage. This is because it can be difficult to get approval from traditional carriers. This company is Good to Go Auto Insurance. It provides quick approval, regardless of credit scores or DMV records. The company provides only the minimum coverage required by law, but optional coverage like Comprehensive and Coverage is available to help policyholders lower their rates.

Good2go Insurance offers a variety of discounts and payment options. The policyholder can choose to pay once per month, once every four or once per year. This option also includes a price reduction. The average discount policyholders receive is between 5% to 10%.