Let’s begin by explaining what an “Insurance Premium” It is the amount you pay to an insurance company in return for being insured with a specific amount of coverage. You basically hand over your money to insurance companies, which promise to cover your losses up to the agreed amount.
Your insurance premium is calculated based on many factors. Age, driving record and years of experience are all important factors in auto insurance. Insurance companies don’t consider vehicle color a major factor in determining auto-insurance premiums, contrary to popular belief.
How is my credit rating used in determining my insurance premium? People often think about credit ratings as personal credit reports or FICO scores. The way credit is used will determine a person’s credit rating. You will have a slightly different credit score when you apply for a car loan than a home loan.
This is why? A credit report is required for anyone applying for a car loan. This places heavy weight on the history of your car payments. It will be difficult to find a company willing to finance your car again if you have had a repossession in the past. You will likely have a higher FICO score if you apply for a mortgage using the same credit report as you used to finance a car loan.
Credit history can be used by all industries to determine risk. You can disagree with me, but I believe credit reports are a direct reflection on a person’s credibility and responsibility. This theory can be applied to insurance premiums. If you are less responsible and credible, you will get higher premiums because you have a higher chance of being in an accident or committing insurance fraud.
Credit history is an exact science. This is why some insurance companies claim they don’t use credit scores. These companies charge a higher premium than those that conduct credit checks. Insurance companies that do not require credit checks assume you have the worst credit and adjust your premium accordingly. This is a marketing trick that targets those who have been declined for insurance coverage or dropped by their insurers for driving records or credit histories.
Shopping around for insurance companies is the best way to get low insurance premiums. Each insurance company is specialized in a specific risk. If an insurance company that offers low rates to young women and older men is chosen, you’ll get a higher rate that if the insurance company primarily covers older men.