Most drivers are aware that a poor driving record leads to higher car insurance premiums. However, far fewer realize that your credit report and scores also play a significant role in determining how much you pay for coverage. Creditworthiness and the likelihood of filing a claim are strongly correlated, according to insurance companies. Statistical studies performed by insurers consistently demonstrate that consumers with lower credit scores are more prone to submitting claims. Drivers with poor credit scores are up to three times more likely to file a claim than drivers with excellent credit scores. Credit information is associated with risk levels using the actuarial tables developed by insurance companies.
How credit information gets factored in?
While insurers use credit reports and scores in pricing policies, they do so differently than lenders. Auto insurance companies are not looking at your precise credit score. A credit-based insurance scoring model incorporates report details to generate an insurance loss prediction rating. However, improving your actual credit score improves this insurance risk score as well. Individuals’ credit reports and scores are primarily compiled by Equifax, Experian, and TransUnion, the three major national credit bureaus. Insurance companies may use just one bureau’s data or an average risk score compiled from all three reports. Ensure the accuracy of reports from all agencies by checking them all to ensure that no errors have occurred.
Primary credit factors that impact insurance
Several aspects of your credit report carry the most weight in determining your insurance risk rating:
- Payment history – Late payments negatively impact scores.
- Length of credit history – More established history is better.
- Balances owed – High amounts owed hurt scores.
- New credit inquiries – Opening many new accounts lowers scores.
Steps to optimize your credit
Maintaining great credit means you should:
- Pay all bills on time.
- Correct any errors on credit reports.
- Keep account balances low.
- Only apply for credit when needed.
- Monitor credit reports regularly.
When credit problems can’t be avoided?
Certain life events like a job loss or medical crisis unavoidably damage credit. In these cases, be sure to document hardships for your insurance company. Special circumstances must be considered by insurers in some states. Proactively improving areas you control helps offset unavoidable score setbacks. While credit history remains important to pricing, insurers apply different formulas and weights. Compare Car Insurance in Thailand quotes from multiple insurers ensures you get the best rates your current credit profile qualifies for. Improving credit over time gives you access to increasingly lower premiums. Keeping a good credit score is one of the best ways to save money on your auto insurance. Monitoring your credit reports and scores while making prudent financial choices reduces rates and provides more affordable coverage costs.