How Credit Effects Insurance Rates

As consumers we like to do our research by getting online and digging up all we can on insurance companies. What we find makes us believe we know our insurance company well. We read a consumer website and feel we know the ins and out about the various insurance companies out there on the market. We then compare them to each other. This is all vital to our bottom line and safety but we need not kid ourselves. The party who truly has all the knowledge is the insurance company.

Across the board the auto industry uses credit based scoring for insurance. Every major insurance provider in the United States using your credit to assess the risk you pose to their company. This practice has seen some heat recently, especially at the state level, as many states are challenging it in legislature. There is an argument that this practice is discriminating the poor. If a person has terrible credit and has never had a ticket or accident, how are they more risk than someone with perfect credit and five speeding tickets?

For now this practice has not been stopped and consumers need to be aware of it as they begin to look for auto insurance. After all, it is going to take and act of Congress to completely wipe out the use of credit to determine insurance premiums. The auto insurance industry also uses a score known as your insurance risk score which takes into consideration claims history, credit, age and more.

There has been a great deal of time and money spent by the auto insurance industry to research how past credit effects future claims. The industry believes there is a strong correlation between the two. They say they hold strong evidence to support the claim that bad credit means that a person is more likely to file a claim. They believe that if a person is able to manage their credit well, they will be able to manage their car well, filing less claims over a lifetime than a person with bad credit.

If you think you may be rated unfairly due to a lower than average credit score you may want to compare insurance quotes between multiple companies. Some companies are more lenient than other companies when it comes to rating a driver with a low credit score.