You may have noticed that potential insurers check your credit history when determining your car insurance premium. What are insurers actually looking at? How will this affect your insurance rates?
The Insurance Score
Our credit score determines our spending limits on credit cards and interest rates on loans. Lenders use creditworthiness to determine our ability to repay loans and how much money we can afford.
Insurers don’t care about how much money your bank has. They just want to know how credit you’ve used in the past, and how that’s affected the way you pay bills and loans.
Insurers use credit differently to traditional lenders so they have their own score .
Creating an Insurance Score
How does an insurer calculate their insurance score? Fair Isaac, a financial management company, offers a formula to help insurers calculate their insurance score. While the formula does not take into account your credit score, it calculates your insurance score based on how credit you have used in the past.
Consumers have the good news that this formula does not prevent them from getting a great auto insurance rate. Car insurance shoppers should be aware that insurance rates can differ from one insurer to the next.
Why?
Insurers are permitted to create their own scoring models. Consumers also have good news: your insurance score may be higher with XYZ Company than it is with ABC Company. This highlights how important it is to shop around for the best auto-insurance rate.
Elements for an Insurance Score
How do you determine which components of your insurance score are included?
Fair Isaac explains that the following factors can be used to calculate an insurance score.
- History of payments
- Credit history length
- Revolving account balance – amount owed
- Collections and items that are not in your possession
- Amount owed for delinquent items
- Since the last late payment or delinquency, it has been time
- Total amount of outstanding loans
Fair Isaac does and not the following:
- Race, age and sex are all factors that affect the origin of an individual’s race, ethnicity, marital status, religion, or country.
- Information about your employment history, job title and salary
- Child support agreements
- Rent obligations
- No matter if you are participating or not in credit counseling
- Wherever you live
Your insurer is the best place to ask questions about your insurance score. Although they won’t reveal your exact score, they should still be able answer all questions regarding credit-based scoring.
Credit Cleaning
Some states have raised concerns about the right of the insurance industry to use credit information to determine auto rates. However, 92 percent (100 largest) auto insurers in the country are currently using credit to create insurance scores. People with poor credit pay 20 to 50 percent more than those with good credit.
Get the best insurance score possible and:
Check your credit reports. Most states allow you to get at least one credit report free of charge each year. Check your credit report for errors and get a copy.
Make timely payments. Online banking and automatic withdrawals make it easy for consumers to do so. Online bill payment is a great option if you struggle to remember what bills are due when.
Pay off large amounts. Credit score can be negatively affected by revolving debt, especially if it is large amounts.
Tips for the Road
Although you may not be able to stop insurers looking at your credit history , when it comes to getting cheap car insurance, there are still options. Compare multiple quotes from different insurance companies and clean up your credit. You will be rewarded with affordable car insurance as well as other financial services.
