Home> Credit Library

Low credit score means high insurance premiums | Another reason to have great credit

Most of us are aware that lenders check our credit and consider our credit score but more and more insurance companies are doing it as well. Insurance companies tend to assume that a bad credit report may also indicate that you’re a bad driver. According to Esurance.com Over 90% of U.S. Insurance companies, including Esurance, use credit-based insurance scores to establish eligibility for payment plans and to help determine insurance rates. (In case you’re wondering, credit-based insurance scores predict how likely you’ll pay your bills in the future.) Actuaries and research analysts have found that the scores help predict your accident potential. If you have a high credit score, you can generally expect lower auto insurance rates than someone with a low credit score.

According to the III, (Insurance Information Institute), credit scoring is extremely important and heavily considered when giving consumers coverage;

Insurance scores are confidential rankings based on credit history information. They are a measure of how a person manages his or her financial affairs. People who manage their finances well tend to also manage other important aspects of their lives responsibly, such as driving a car. Combined with factors such as geographical area, previous crashes, age and gender, insurance scores enable auto insurers to price more accurately, so that people less likely to file a claim pay less for their insurance than people who are more likely to file a claim. For homeowners insurance, insurers use other factors combined with credit such as the home’s construction, location and proximity to water supplies for fighting fires.

Insurance scores predict the average claim behavior of a group of people with essentially the same credit history. A good score is typically above 760 and a bad score is below 600. People with low insurance scores tend to file more claims. But there are exceptions. Within that group, there may be individuals who have stellar driving records and have never filed a claim just as there are teenager drivers who have never had a crash although teenagers as a group have more accidents than people in other age groups.

Credit Report Information—Who Wants It? It is becoming increasingly important to have an acceptable credit record. Whether we like it or not, society equates the ability to manage credit responsibly with responsible behavior, even if individuals have a bad credit record through no fault of their own. Landlords often look at applicants’ credit records before renting apartments to see whether they manage their finances responsibly and are therefore likely to pay their rent on time. Banks and other lenders look at the credit records of loan applicants to find out whether they are likely to have loans repaid. Some employers also look at credit records, especially where employees handle money, and view a good credit record as a measure of maturity and stability.

People with bad credit pay up to 50% more for car insurance! That’s nothing new however, as insurance underwriting has been using credit scoring to determine rates for some time. On the flip side, people with good credit are going to benefit from lower premiums. That’s great news for the percentage that have good credit but considering that almost 70% of credit reports contain errors, even those who think they have good credit may not.

Do it yourself credit repair and an annual audit is definitely worth your time whether you have good credit or not. Since one out of four credit reports contain errors, you may be paying more than you should, regardless. Hiring a credit repair company may not be a wise investment for a few minor blemishes. In that instance, do it yourself credit repair is financially beneficial. It’s cheaper and it makes more sense if you’re just questioning a few items. Paying up to 39.00 a month wont make much sense for a few blemishes. Your trying to lower your car insurance premium so another monthly expense makes little sense.

The DIY method can payoff big and could cut your car insurance rate by up to 50%. That’s a substantial savings worth your time By taking a look at your credit reports, you can identify any potential issues that may affect your credit history.

It’s not clear whether the insurance company you are with uses a FICO credit header or a different type of score but the bottom line is, they are interested in your credit score and not how much debt you have or home loans outstanding. They care about overall credit history and the score gives them that.

Many people feel that using a credit score to determine car insurance rates is discrimination because people with low income or prior credit issues are targeted for the higher premiums. The jury seems to still be out on whether the insurance industry will come up with something more fair and balanced for all.

It just goes to show that taking care of your credit is becoming more important and affecting more aspects of your overall financial health. It’s a task worthy of undertaking to save some money. If you haven’t taken a look a t your credit in at least a year, you need to review all three credit reports to make sure they are in deed accurate. If you do have bad credit, take DIY steps now to remedy those issues and hopefully lower your car insurance premiums.

Be sure to get at least three insurance quotes before you settle on one. Ask the insurance company if they use your credit to determine what rate you’ll pay. You can also find out more about your state insurance laws at http://www.iii.org/media/companies/state_org/insur_departments/

Related Articles
How long can bad credit stay on your credit reports?
Bankruptcy & your car
Collection laws by state
All about Fico Scores
Loan shopping can harm your credit score