Many people are surprised to learn that insurance companies consider a person's credit score when determining premiums. However, a person's credit score is one of the factors that most companies use to determine how much to charge a person for insurance. While a person can't fix their credit score overnight, it is important for consumers to understand the correlation between bad credit and higher rates as well as some ways to get a better deal on auto insurance.
The primary reason that insurance companies may charge a person a higher rate if they have bad credit is that the company treats those with bad credit as a higher risk. While a person's credit score may not be a reflection of their ability to drive, a person who is late on their bills may be more likely to miss premium payments on their insurance policy. Though it may seem unfair, charging a higher rate to those with bad credit is legal in most cases.
Another reason that an insurance company may charge a higher rate to a person with bad credit is the increased possibility of fraud. The company may believe that a person with financial problems is more likely to make a fraudulent claim. While a person with bad credit may or may not be more likely to commit fraud, insurance industry studies have shown that those with bad credit are more likely to file a claim than those with higher credit scores.
Check Your Score
Whether a person is looking to get car insurance, take out a loan, or complete any other financial transaction, it is a good idea to pull a copy of their credit report and review it for inaccuracies. Each credit reporting agency has its own rules to correct information on the report, but by making certain the information is accurate a person may be able to raise their credit score and save significantly. According to federal law, a person is allowed to get one free copy of their credit report from each credit reporting agency every year.
Credit Score Maintenance
In order to prevent future problems, every insured person should make certain to use their established credit carefully. By simply paying bills on time and maintaining low credit balances, a person can keep their credit scores high and avoid potential problems down the road due to a low credit score. Even if a person is not planning on making any purchases or obtaining new credit in the near future, it is a good idea to periodically check his or her credit report for signs of fraud or other inaccuracies.
If you are looking to buy a new insurance policy or simply seeking to save some money, it can pay to shop around between different companies for the best deal. This is true regardless of your credit score. However, people with bad credit may be able to save more money than those with good credit by simply switching from one insurance company to another.
A credit score is just one of many factors that companies use to determine insurance premium rates. However, it is one factor that a person can control. By keeping an eye on their credit report and using credit wisely, a person can get a better deal on their insurance.
Andrew Greene is a freelance insurance writer who blogs for accidentclaims.org where you can read about what is no win no fee</a> in terms of filing for compensation.