The relationship between credit worthiness and auto insurance

It surprises many drivers when they find out that their insurance rates are impacted by credit worthiness. According to a study by Conning and Company, over 90% of automotive insurances providers use credit-scoring models. They have formulated a model called the insurance risk score that aims to predict how likely a candidate is to file a claim.

Auto Insurance Credit Score

While insurance companies may not use this risk score to arrive directly at your insurance premium, the information is a strong factor. Any automotive insurer will ask your permission to research your financial background. They typically perform two inquiries into your credit from separate bureaus and combine the scores to produce an insurance risk score.

Auto insurance providers have decided over the years that there is a connection between a driver’s credit history and likelihood to file claims. A credit score and report are a written assessment of how trustworthy and responsible a person is with money. Auto insurance providers draw a conclusion from a positive credit history that you will be equally cautious in your driving habits. If your credit is poor and your score needs to be improved, there are several factors that impact your overall score. Payment history, total debt owed, length of credit history, number of new accounts, and balance of active accounts are the five areas that directly impact credit scores. Making changes in these categories will result in movement of your overall score.

If your insurance risk factor is negatively impacting your ability to secure automotive coverage, work on improving your credit score. Understandably, how you pay your debt is the largest factor influencing your overall score. Paying your debt on time consistently will result in considerable changes to your score. Limiting the number of new credit applications can help your score, like shopping for new credit frequently is seen as a poor choice when calculating credit scores. Steer clear of negative items on your credit report like collection accounts, judgments and bankruptcies.

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