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By clicking the button above, I hereby consent to receive marketing communications via autodialed and/or pre-recorded calls, text messages/picture text messages, and/or emails from the agents of one or more of our marketing partners at the phone number provided above, including wireless numbers, if applicable, even if I have previously registered the provided number on the Do Not Call Registry. I understand that consent is not a condition to receive quotes. To receive quotes without providing consent, please call 1-855-210-8720. Carrier data rates may apply.
Auto insurance companies love data. In such an industry centered on the calculation of risk, often no stone is left unturned. As such, insurance companies will check everything they can about an applicant before they determine if they will provide coverage for you and if so, how much they will charge them. One of the key things insurance companies check is a person’s credit score.
A credit score is a three-digit number which reflects a person’s creditworthiness. It paints a clear picture of a person’s financial behavior in relation to paying debts and bills. If you are a person who pays all his debts and bills in full and on time, your credit score will be much higher than people who don’t.
However, auto insurance companies don’t look at the regular credit score that banks check. Instead, they analyze some aspects of your overall credit history then create their own credit-based insurance score. This is because auto insurers only care about information that relates to car insurance. Unlike financial institutions, auto insurance companies are not interested in your income and location, but both need to determine the risk. The following are some of the things insurance companies check:
a) Length of credit history
b) Outstanding debt
c) Applications for new credit
d) Credit utilization
e) Payment history, including delinquencies and late payments.
f) Number of credit accounts held
Insurance companies use an applicant’s credit-based insurance score (which is derived from credit history) to predict whether or not they’ll file claims. Auto insurance is all ab0ut balancing risk, so the insurance companies use that data to decide whether or not to give you coverage and to determine what you’ll pay in premiums.
But you may wonder, what exactly does credit history have to do with a person’s risk as a driver?
Well, according to the US Insurance Information Institute, there exists a direct correlation between insurance claims and credit. Statistics show that a vehicle owner with a low credit-based insurance score is more likely to file frequent and more costly claims than those with high scores. Also, people with lower scores are the ones who commit insurance fraud and exaggerate claims.
FICO also says that there is a link between how individuals use credit and how they drive or maintain a vehicle. In other words, a person who is careful with credit is likely to be careful on the road. Another independent study by the Federal Trade Commission found that insurance scores can be reliable predictors of risk.
The extent to which your credit score affects your insurance rates varies between providers. This is because auto insurance companies use different algorithms to calculate insurance rates. However, if your credit score is low, there is no escaping paying higher premiums regardless of what algorithm is used.
It is important to note that in California, Hawaii, and Massachusetts, insurance companies are not allowed to use your credit scores. Instead, your rates are determined using your driving record and personal information.