How Credit Scores Can Impact Auto Insurance Rates
Posted by: Staff Writer | Jul 21,2007
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You bang up your new Prius, smashing it into a tree. Your brother misses a few payments on his Discover Card. Guess whose auto insurance is going up, yours or your brother's? The big surprise is that it's not an accident that will raise your rate, it's a low credit score, so not paying your credit card can have just as dramatic an affect on your auto insurance rates.
Bad Credit and Bad Drivers
The science of risk assessment (figuring out when and how and who has accidents) has pinpointed a strong connection between people who have good credit scores and the fact that they make a lower number of claims on their policies. They found the opposite to be true too - people with bad credit make more claims.
On a common sense level, you can follow the logic. Someone who has the character to be responsible with making sure the bills are paid each month might also be the same kind of person who doesn't take dangerous risks behind the wheel.
Who Wants Customers Who Pay Late?Now auto insurance companies are not only looking at scores, but also for payment patterns. Do you pay certain bills routinely 30 or 60 days late? Studies have shown customers who make late payments on other bills also have a track record of paying their insurance premiums late. Consequently, companies are even taking a closer look at your credit information.
Using a credit report is part of a larger trend in the insurance industry to create more categories that rate a person's risk level. Other insurance industries, like life and health, have also begun to look at credit reports in their risk assessments. Except for the few states where it's illegal, surveys show that nearly all of the large auto insurance companies are now using credit reports to determine a customer's rate. While this might be good news for you if you have good credit, it should be wake-up call if you have bad credit.
Pay Attention To Your Credit ReportThis goes to show, once again, the importance credit reports have in today's world. The technology that now makes information so quickly available has made it more important than ever to pay your bills on time and to keep a good credit score.
Check your own credit report at least twice a year by going to Free Credit Report.com or Annual Credit Report.com. Mistakes can happen and you don't want anything on there that's going to cost you more money.
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