Top Hat Insurance Agency

Credit History – How it affects your Insurance Premium

Most of us are aware about the importance of the credit history when we need to apply for loans. But what many may not be aware of is that the same credit history is equally important when it comes to your car insurance premium. What is the first thing that you are likely to ask your insurance representative when he presents a particular policy or proposal to you? It is the premium that you would end up paying for the car insurance that you are about to take. And your credit history is one of the important factors that affect the premium that the company would be charging you.

Credit History: It says a lot

Although this may seem strange to many, but your credit history speaks a lot of things about you and hence you should strive to make sure that you keep it in the finest shape. Some of the things that any financial analyst may be able to gauge about you from your credit report include:

- What kind of repayment history do you have?
- Are you a sincere and honest person who is attentive about his dues and payments? This in turn, also reflects whether you are callous or not in respect of your credit duties.
- Are you credit worthy enough?

Another factor that influences the auto insurance companies to look for your credit report is the co-relation that has been noticed between the same and the claims that a customer eventually asks for. Those who have had a good credit history are expected to have fewer losses when it comes to insured products

The reason that some insurance companies use credit information is because there is a direct correlation between consumer’s credit history behaviors and expected claims that may occur. Therefore, they feel that people with better credit behavior are less likely to have severe insurance losses and hence would result in lesser claims that the car insurance companies would have to field.

Discounts and Freebies

Apart from the obvious reasons, there are some others as well that should propel you to go forward and establish a decent enough credit history like:

- Reduced premiums or discounts on the premium that you have to pay.
- Increases the number of companies that you can approach as without a credit history, your portfolio gets reduced to those auto insurance companies that do not usually weigh in your credit reports.

Credit Score

Some of you may question whether the insurance companies are allowed to look at your report without taking prior permission from you with regards to the same. Well, legally, they are allowed to do the same as per the Federal Fair Credit Reporting Act. Some of the car insurance companies also opt for what is known as the Credit Score wherein they use the data and details they have on you to come out with a score that should provide them with the required parameters and help them decide your case.

How is it calculated?

Some of the factors that may be noted or scrutinized by the insurance firms for compiling the credit score may be:

- How long have you been in the credit system?
- Number of inquiries made by you for credit requirements
- The kinds of credit facilities that you are enjoying presently
- Repayment history over the past few years

The credit score though would vary from company to company and each insurance firm would arrive at its own score based on the parameters that it uses for the calculation. This is then used by the company to analyze and see what kinds of services they ought to offer you and whether there should be some strictness or relaxation in your particular case.