How Does Credit History Affect Car Insurance Rates?
Credit history decides the perceived financial risk attached to a person. Thus, most of the car insurance companies take into account a person’s credit history while settling upon a particular premium amount. As expected a person with bad credit history will have to pay a higher value of insurance premium at higher insurance rates. This is obvious because if a person has a bad credit history it affects the claims made by him or her against car insurance.
Yes, it is true that your age, driving history, type of vehicle, where you live and a few more factors affect your car insurance premium to a great extent but credit history is not less important. It is developed through statistical techniques and methods.
Generally, the points, which auto insurance companies look for while determining the Insurance premium on basis of Credit Score, are:
- Public records: bankruptcy, collections, foreclosures, liens, charge-offs, etc.
- Past payment history: number and frequency of late payments, days between the due date and late payment date.
- Length of credit history: time period you have been in the credit system.
- Inquiries for credit: number of times you have recently applied for new credit.
- Number of open lines of credit: number of credit cards (used\unused).
- Type of credit in use: major credit cards, store credit cards, finance company loans, etc.
- Unused credit: how much you owe compared to how much credit is available to you.
Usually good credit score and history implies that you have to pay lower insurance premium. A particular range of credit score would qualify you for specific rate or policy of car insurance.
Now, each car insurance company has its own means and methods of determining credit scores. Thus, one might find you eligible for one kind of policy other might not qualify you for a similar one. However, if you do have a consistent bad credit score in reports of all the car insurance companies you approach its time for some analysis. You have to take steps to improve your credit score and then approach the insurance company again to re-evaluate your credit score at renewal.
Effect of bad credit history on your car insurance premium lowers a bit if you have life insurance policies or some other insurance policies. It is all the more good if your previous insurance policies are of the same company from which you wish to buy car insurance policy. However, it is wise to improve your credit score in order to get good car insurance deal in terms of insurance premium and rates.
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