What Is The Link Between Insurance Rates And Credit Score?

By Author: Norris Rios
Total Articles: 568
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A lot of car owners don't even suspect the fact that such seemingly unrelated things as auto insurance rates and credit rating have a very strong bound. Moreover, a customer's credit rating may be the factor that will either lower or increase his or her insurance premiums. But why that is so and what does credit rating has to do with auto insurance?

You probably know that any auto insurance company uses a set of factors when determining the rates a customer will pay for their services. The list of factors is pretty much the same across different provider and includes typical car variables (make, model, engine volume, etc,) as well as specific demographic factors such as the person's age, sex, marital status, driving record and others. The latter factors are used to determine how likely the person is to file an insurance claim. Using statistical analysis auto insurance providers can tell that a certain group of drivers (say, those younger than 25) is more likely to have an accident and file a claim than another group (married drivers with higher education). And the rates are set in order to cover these risks.

As ...
... it turns out, a person's credit rating can be an indicative factor when assessing insurance risks. It was statistically proven that customers with lower credit scores and worse credit records tend to file insurance claims more often than those with better scores. With this in mind, a lot of auto insurance providers are using the customer's credit rating when calculating their rates, and in most cases it is done without the person knowing it. Some would say that it's an infringement of personal data, however the US legislation allows insurance and lending institutions to use such date for internal purpose. And they are exercising this right whenever they need to.

This raises another question: what actually affects one's credit rating? There is a set of factors that will significantly influence your credit score, such as:

* Public records
* Payment history
* Duration of credit history
* Inquiries for credit
* Open credit lines
* Types of credit lines used
* Unused credit

Using these factors you will be able to determine how good or bad your credit score is and try to improve it by consulting with a credit expert.

Still, there's good news for those who feel that their credit score isn't that advantageous. Not all auto insurance companies are using credit rating when calculating quotes. So finding one will be a good option of your credit score cannot be improved. You can consult with your insurance agent or find a respective list in the Internet.

If you feel that you can improve your credit rating, then you first have to get your credit report and analyze it preferably with a finance expert. See what can be improved, make the necessary changes in your credit lines and allow about 30 days to pass for your credit rating to change. Only after this you can get auto insurance quotes with just any company and chances are that your premiums will be much lower than before reviewing your credit report.