Other than the details of the vehicle and vehicle owner, the credit score is one of the most important factors that determine auto insurance quotes. Insurance companies use credit information to predict the likelihood that a particular customer will file a claim and will be expensive to insure. Such customers are charged higher auto insurance quotes. On the other hand, when the credit score is high, the person is considered to be less risky and hence auto insurance quotes are relatively cheaper. The credit information is used to figure out credit based auto insurance quotes.
Credit score and calculation of auto insurance quotes:
There are some of the very important factors that are taken into consideration when arriving at auto insurance quotes based on credit score. These include payment history and whether you have been doing your payments timely or not. The length of credit history is also an important determinant. Similarly, the types of credit taken whether credit cards or bank loans also matter when calculating auto insurance quotes.
In case your credit rating improves, you can supply relevant information to your insurance provider and get your rating upgraded.
Reliability of credit score as a means to calculate auto insurance quote:
A popular concept though, many states in the US including California and Hawaii have imposed a ban on the use of credit scores to predict auto insurance quotes. It is a popular belief that they make drivers pay hefty amounts for the accidents that have not even occurred yet. They argue that being careless about your finances does not imply that you will be a reckless driver.
When the recession of 2007-2009 occurred, industry experts realized the negative impact of an ailing economy would worsen credit scores irrationally. This means auto insurance quotes shall go up very unreasonably. That is when the concept of “extraordinary life circumstances exceptions” came into being. This meant customers can request the insurance company not to use a credit score to arrive at auto insurance quotes in extraordinary situations.
Kinds of extraordinary life circumstances:
The following are some examples of these exceptional situations.
- death of a spouse, parent or child
- deployment in military overseas
- serious illness
- Identity theft
- Any national calamity or emergency declared by the government.
How to control auto insurance cost:
No matter how unfair it might seem, credit scores are widely used to predict the risk associated with a particular customer. So, if your credit score is not good enough, how can you control your auto insurance cost?
Simple as that, shop around extensively for a suitable insurance company that does not give as much significance to credit score as other factors. These factors include driving history, the condition, model and make of the car and other relevant factors.
Another option could be to go for an assigned risk plan that allows risky drivers to get coverage for some definite time period. This will enable them to avoid situations like getting into an insurance lapse. That would further aggravate the credit rating of such high risk customers.
There are certain types of credit that insurance companies identify quickly and penalize customers with poor credit ratings. These include department store credit card, tire dealer credit card, credit from auto parts store or service stations and retailer credit cards. Avoid such types of credit to improve your credit rating. Lastly, such customers should try to improve their creditworthiness by being careful about paying their bills on time. They must also view their credit reports from time to time so that any discrepancies or errors are rectified timely. There are also credit monitoring companies that do this job.