| Your Credit and Your Insurance |
| Written by Fred McConnell | |
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Credit scores are used to determine a lot of things these days, such as mortgage eligibility and interest rates for car and personal loans. Some employers are even looking at them now in the pre-screening process. Car insurers are also now starting to look at credit ratings when they quote premiums for insurance policies.
Research firm Conning and Co. says that nine out of ten car insurance companies use caredit scoring data as parto fo their calculations to determine auto insurance premiums as part of their insurance risk score. Each company gives a differing amount of weight to credit data, but it's undeniable that in most cases your credit rating will have some impact on your insurance premium. Your credit rating is essentially a score that lenders use to determine how much of a risk they're taking when they lend to you. Basically, your credit score is an indicator of how likely it is that you will pay your bills. In the U.S., most credit report information is generated by one of three leading credit bureaus, Equifax, TransUnion or Experian. Each company has its own formula and own scoring sheet, but in general credit scores range from about 300 to 800, with lower scores indicating higher risk and higher scores indicating safer bets. The credit score is generally determined by your total debt, the number of insitutions you owe money to, how timely you are with payments and whether you've defaulted or been seriously delinquent in payments. In general, a good credit score is anything above 600. Recent legislation entitles U.S. residents to a free look at their credit report once a year. You can access the report at www.annualcreditreport.com, but if you want to see your credit score you'll have to pay a fee. Credit scores are factoring into insurance premium quotes as insurers are beginning to percieve a potential insured's creditworthiness as an indicator of what type of insurance risk he or she will be. According to industry experts, people who manage their money well also tend to be responsible about other aspects of their lives, such as being a good driver and abstaining from dangerous habits behind the wheel. A bad credit score can be expensive for insureds. According to industry experts, insureds with bad credit can pay up to three times as much in premiums as drivers with the same driving record, but with better credit. Not only are some insurers looking at credit ratings when they quote premiums, they're also looking at them and adjusting premiums on a regular basis. This means that if you miss a few credit card or mortgage payments or yo get into a dispute about a debt, your car insurance premium could increase. Also, your insurer isn't obligated to offer up the information that the insurer may be using your credit score to determine your premium. However, several states are drafting laws to require insurers to notify customers up front that they're using credit score information to set rates. Of course, the use of credit scores in determining insurance rates isn't all bad for consumers. It's actually helped a few people who may have less-than-perfect driving records but, on the other hand, have excellent credit, either get lower premiums or mitigate the impact of their spotty driving history on their premiums. The move to base insurance premiums on credit scores in part has been controversial. Many consumer rights organizations have protested this practice, saying it unfairly targets working-class people, especially in the current economic climate where many have fallen behind on payments because of the recession. Opponents of the practice also point to the many errors and matters of dispute that can crop up on a credit report as reasons why insurers shouldn't use them to set premiums. If you feel you're getting a bum rap from your insurer concerning your credit score and its impact on your premiums you do have some options. You can request a copy of your credit report to make sure there aren't any errors on it that may be driving your premiums upward. You can also shop around for other insurers that don't use credit scores in calculating premiums. Also, if your credit is bad, it's advisable to buckle down and start making payments on time and getting debts paid off. It won't just lower your insurance premium, it will also improve your credit, making it easier for you to get loans at attractive rates and provide you with more ready cash each month. |
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