Insurance companies have always recommended that you monitor your credit score to save money on car insurance. The reason for this is that nearly 90% of insurance companies use “Risk scores” to decide who they will issue a policy, with more than 50% using these scores to determine their premiums. According to the insurance industry, there is a direct correlation between financial responsibility and insurance claims. You can create a “Risk Score” by entering your credit score, credit history and other information into one of many secret scoring models. (No one knows how many of these models are available. Fair Isaac and Choicepoint provide models that are used by hundreds of companies. However, there is no standard, so many insurance companies have created their own.
No matter how the scores were calculated, they are supposed to predict who will file a claim. Your insurance rates will rise the more likely that you will file a claim. If you have excellent or close to perfect credit, watching your Credit Score can be a good idea. It does not help the 1,112,000 Americans who declared bankruptcy last year, or the millions of people with below-average credit scores. These people may have a difficult time finding affordable auto insurance. Monthly insurance premiums can exceed or equal monthly car payments. Even people with excellent credit can still be charged higher premiums simply because they have applied for a loan or a credit card within the last year of their insurance policies. You’re not the only one who finds this unfair.
Twenty-two states attempted to pass legislation that would regulate the use of “Risk Scoring.” Due to the power of the insurance lobbyists most of this legislation was either dropped or watered down so that it doesn’t protect consumers. California, Hawaii, Massachusetts and New York have all stepped in to assist consumers with poor credit. They banned the use of credit scores or past history when determining policy acceptance and premiums. This is great news for those who live in these states, but how can the rest of us save money on auto insurance? Select an insurance company that does not use “risk scores”. Nearly 10% insurance companies do not use this scoring policy. Your driving record is what determines your premium, and not your credit score. Although these companies are smaller than others, they make up for it with great customer service. Some are specialized in certain professions or organizations. Many have financial ratings ranging from “A++” up to “B+”, which means that they are available if you need them. These companies may sound great, but you need to remember that these companies do not use Credit Scoring to determine premiums. This does not mean that you will receive a lower premium. Even if your credit score is poor, chances are that you will. However, it’s important to shop around for the best prices and compare them. Make sure that you are comparing the same coverage with each insurer. Finding these companies can be a problem. You will need to investigate the company’s lack of risk scoring. Start by calling your state’s insurance department.
Some states, like Michigan ([http://www.michigan.gov/cis/0],1607,7-154-10555_12902_15784-111965–,00.html) have a listing of insurers operating within their state that do not use credit scoring. Most of these companies are licensed in different states. This list is updated annually. To find out if the insurers that you are interested in operate within your state, do a search on their websites. If they do, ask them for a list with local representatives. These smaller companies often sell policies through independent agents that represent many companies. This may seem like a lot to do in these 30 second e-quotes, but it is worth the effort and time spent looking for these companies.