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Credit Rating And Auto Insurance: How Are They Related?

By Compuquotes Team on March 27th, 2008
Auto Insurance

Some auto insurance companies take your credit rating into consideration when they are determining how much of a premium to charge to you for your insurance. When you are looking for new auto insurance, you should be prepared for the insurers to look at your credit history.

The main reason that some auto insurance companies use your credit rating and information is because they have found a correlation between credit ratings and expected insurance claims. This correlation has led insurance companies to believe that people with better credit ratings are less likely to have a severe insurance loss and thusly, a large claim.

Of course, insurance companies will still you use your driving history, the type of vehicle you drive, your age and where you live in determining the premiums you will pay for your insurance, however they also look at your credit rating. Not all insurance companies use credit scores to help determine your insurance premium, but if you have yet to establish a credit rating or have a poor credit rating, it would best suit your interests to find an insurance company that doesn't look at credit history for your insurance needs.

The Federal Fair Credit Reporting Act states that an insurance company, along with other credit and personnel industries can look up your credit information. It's always a good idea to know what condition your credit rating is in and you can look at your credit reports. If you find an error, you can file with the credit bureau or bureaus (there are three in the United States-Trans Union, Equifax and Experian) for them to investigate the error.

Insurance companies don't always look at your actual credit reports, although some do. Most will look at your insurance credit score which is a statistical method to predict your likelihood of loss and claims. Some of the factors that are considered for your insurance credit score are bankruptcies, foreclosures, liens, your past payment history (how many late payments you made and how long it took you to pay), the length of your credit history, how many times you have recently applied for new credit, how many credit cards and open lines of credit you have as well as how often you use them, the types of credit that you use (credit cards, loans, etc.), and how much you owe on your credit cards.

Insurance companies will determine your insurance credit score on their own, which means there is a great potential for each insurance company to have a different score for you. This is one of the chief reasons it is so important to get at least three quotes for your insurance before deciding which company to use.

If you have a not-so-good credit rating and are stuck with higher auto insurance premiums, you can work at improving your score. At the time of your renewal, ask your insurance company to review your credit score. An improved credit score could mean a much lower insurance premium for you to pay.

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