If you have recently purchased car insurance, you have probably noticed that potential insurance companies check your credit when you decide your car insurance premium. But what exactly do insurance companies look like and how will it affect your insurance rates?
Introduction The insurance result
We are all aware that our credit points are used to determine the spending limit of our credit cards or interest rates on loans. Our credit rating is used by lenders to measure our ability to repay loans and how much money we have to make.
On the contrary, insurance companies do not care about the amount of money you have in the bank they just want to know how you used your credit earlier and how it affects how to pay bills, loans and other debts.
Because insurers use credit differently than traditional lenders, they have scored one point altogether the insurance result.
Formulate an insurance result
How do insurers formulate an insurance result? Fair Isaac, a financial management company, gives insurers a formula to calculate your insurance score. And while this wording means your actual credit score, your insurance score is calculated in a way that quantifies how you used credit earlier.
The good news for consumers is that because of this formula, no object can prevent you from getting a good car insurance rate. But as far as car insurance customers are concerned, insurance rates may vary from insurers to insurers.
For the most part, insurance companies get their own scoring models. This is also good news for consumers your insurance performance may be better with the XYZ Company rather than ABC Company. This also highlights the importance of shopping for the best car insurance rate.
Elements of a Insurance Score
So how do you know which components are included in your insurance score?
According to Fair Isaac, the following factors are used to determine an insurance score
The length of credit history
Amount paid on rotating accounts
Delinquent objects and collections
Amounts owed for criminal offenses
Time has elapsed since the last delinquency or late payment
Total outstanding liabilities
Fair Isaac does not consider the following
Race, age, sex, marital status, religion or country of origin
Employment history, job title or salary information
Child Support Agreement
Whether you have or participate in credit counseling
Where do you live
If you are curious about your insurance score, direct all questions to your insurer. While they may not disclose your actual score, they should be able to answer any questions related to credit based rating.
Cleaning of credit
While some states question the insurance industrys right to use credit information when fixing auto interest rates, 92 percent of the countrys 100 largest auto insurance companies use credit to develop insurance results and people with bad credit pay anywhere 20 percent to 50 percent more than drivers with good credit.
Get the best insurance points and
Look over your credit report. Most states qualify for at least one free credit report each year. Get a copy of your credit report and check any errors that may hinder your ability to get a good insurance score.
Pay on time, all the time. Automatic withdrawals and online banking make it easier for consumers to make payments on time. If you find it hard to remember what bills are due and when paying online is probably a good move to do
Pay large balances. If you have large outstanding balances or swinging debt, work to pay these balances as soon as you can. Revolving debt has a negative impact on your credit score especially if you owe a large amount of money.
Tips for the road
You can not prevent insurers from looking at your credit history, but when it comes to finding cheap car insurance, youre not out of order. Be sure to compare several auto payments from different insurance companies and work to clean up your credit. You will be rewarded not only with affordable car insurance, but also in many other financial areas.