How Credit Scores Impact Your Car Insurance

Credit scores that are used by insurance companies are a type of credit-based insurance score. This is a score that is different from a typical credit score. A credit-based insurance score does not factor in your job history, income history, gender or any other type of personal information. 

All automobile insurance companies typically use a credit-based insurance score when calculating the rate for a customer. If you live in Massachusetts, Hawaii or California, then the use of credit-based insurance scores is not being used as they are banned in these states.

Usage Reasons

Car insurance companies use credit-based insurance scores to gauge the potential of an insured to have an accident. The use of these scores has shown that individuals with higher insurance scores do not tend to have accidents as often as individuals with lower insurance scores. 

The frequency of a claim submitted by individuals with a lower insurance scores correlates with increased payouts. An insurance company loses money when they have a high frequency of claims. The use of insurance scoring allows for the determination of risk when the rate is calculated for the policy premium.

Influencing Factors

Various types of consumer reporting agencies are used to obtain an insurance score for an individual. If a credit bureau is used to calculate an insurance score, then your current credit score will impact your insurance score. 

Factors that are favorable to a high insurance score include an established credit history and having no late payments for accounts that are past due. Unfavorable factors will include a payment that is past due, having an account in the collections process, an increased amount of debt and having a high number of inquires about your credit history.

Consumer Rights

Individuals that are subject to a low insurance score can obtain a copy of their credit report and dispute any entries that are incorrect. However, the insurance company cannot change the score that was obtained. 

This means that you will need to correct the problem and have the insurance company obtain a new score on your policy. The passage of the Fair Credit Reporting Act allows an individual to obtain a copy of their credit report for free. Go to the website at www.annualcreditreport.com to obtain a free copy of your credit report.

Control Your Credit

Most states have laws in place that regulate the use of credit-based insurance scores. Some states allow the use of insurance scores only as a discount. However, if you can increase your credit score then you can save money on the cost of your automobile insurance policy. 

To do this you need to monitor all the activity that is on your credit report regularly. Order your credit report once a year and make sure information about your credit is correct. Information that is incorrect will unfairly lower your credit score.

Tips

The use of credit-based insurance scoring is here to stay. This means that you need to be aware of your credit score before you shop around for car insurance. If you currently have bad credit, then other ways will need to be found that can lower the cost of the policy premium. Contact a local insurance agent to run a quote for a car insurance policy.

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