Many individuals don't realize it, but any car insurance company is going to check your credit score right along with your driving record and other car insurance history. Under FCRA regulations auto insurance companies ask for permission to see your credit score to determine your risk. Basically there are two things they look at in coming up with your car insurance quote. First they look at your credit score and then they determine an insurance risk score. This article is going to delve into the scores and how it could affect you as you shop around for car insurance. You will also learn that some states have regulations regarding their insurance premiums.
First there are many things that will determine the premium. The car insurance company is going to look at age, income, gender, race, religion, marital status, and geographical data on the insurance application. Many states have different regulations that must be followed in order for you to gain insurance. For an example Colorado has limits on the lowest amount you can have regarding coverage. In other states like Florida you have what is called a no fault insurance option to avoid any fault being laid on the wrong driver. In other words there were so many rear end accidents caused by individuals who didn't turn on their blinkers, but instead just slammed on the breaks, in which the person following them would hit them. Since the debate could go either way for who is at fault in this instance the no fault insurance was started. We mentioned above that certain states had regulations on how high their premiums can go. Washington is one state that regulates insurance companies so that the premium can't rise higher than is fair for the consumer no matter their credit score.
Let's look at how the credit score and risk score will affect your premiums for car insurance. Insurance companies look at the correlation between credit scores and driving history. They have done several studies showing the likelihood of a consumer filing a claim. They believe that a good driver is someone who is not under financial stress. In other words if the credit score is high the insurance company will believe the consumer is trustworthy as a driver because their financial life is handled responsibly. This means that they are less likely to file a claim. Likewise for someone who has financial stress they are perceived to have more stress and less responsibility. This means that the risk is higher. So the credit score goes into the calculation for insurance risk scores. The lower your credit score is the higher your premiums are going to be based on this system. Even if you are a responsible person and had an instance of bankruptcy due to bad investments or clients not paying you, the car insurance company is going to see you as a risk and therefore your premiums will rise. It is important to understand this correlation in order to understand why your premiums change when you renew your insurance every six months or yearly.
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