Is your auto insurance cost affected by your credit score?
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Transcript of Is your auto insurance cost affected by your credit score?
“Sure. You want to stay on this road for about $6.00 worth, then turn right at the
stop sign, go about $1.25, then keep to your left and you will be there in about $3.15.”
Like employing defensive driving strategies behind the wheel in order to avoid collisions,
nowadays, we also have to be concerned about how our finances can affect our auto
insurance rates.
Consider this: missing a single credit card payment could increase the cost of insuring your car, due to the widespread use of an
insurance scoring model that considers policyholders’ credit histories.
You may believe that your borrowing behavior may appear unrelated to the risk of
something bad happening to your vehicle.
The insurance industry, however, says that a credit history can be used to help predict the likelihood of a policyholder eventually filing a
claim and costing the insurer money.
As a result, insurers are increasingly relying on credit-based insurance scores — calculated using information from
policyholders’ credit reports — when providing insurance coverage.
These credit-based insurance scores share similarities with traditional credit scores
used by banks and other lenders, including the types of information they consider in
order to gauge risk.
Insurance scores are designed to predict insurance losses; credit scores predict the likelihood of delinquency or nonpaying of
credit obligations.
While some of the same factors or characteristics are used to develop a credit-based insurance score, not all of the credit
information is used.
Insurance scores have been in use for more than 20 years, but have experienced a recent
surge in popularity.
FICO, creator of the leading financial scoring model that bears its name, says that roughly 95 percent of all auto insurance policies are awarded today based to some degree, on
credit-based insurance scores.
These factors, along with more traditional factors like age, gender and claims data, are
used to determine insurance rates for drivers.