There are only three states, Claifornia, Hawaii, and Massachusetts, that prohibit insurers from using credit information when calculating premiums. If you live in one of the other 47 sates, your low credit score could affect your insurance premium.
Why does your credit score affect your insurance premium?
The answer is simple. Insurers have found a strong correlation between credit scores and insurance claims. It turns out, people with low scores are more likely than people with high scores to file claims. And when insurers looked more closely, they discovered that people who made late payments were the ones who tended to have more claims.
They didn't find as strong a correlation with other factors, such as taking on too much new credit, which other lenders care about because they worry that you won't be able to keep up with your payments.
Insurance companies use a different credit score to determine your premium
The version insurers use is slightly different from the one that lenders use. Both types of scores are based on information from your credit report, but insurers weigh the items differently. For example, insurers look a lot more closely at how you've managed credit over time rather than how much credit you've applied for recently.
Your insurance score can vary from insurer to insurer, based on the company's claims history. Insurance companies won't reveal all of the details of what goes into their scores, but you can get a version of your insurance score from TrueCredit, available through TransUnion for $9.95. The site provides separate scores for auto and homeowners coverage, which weigh the factors a bit differently, plus advice for improving your insurance score.
Even though your insurer may use its own calculation, the general advice can help anyone improve his or her score. Because each insuance company uses it's own calculation, it is important to shop around occasionally. You can often find a better deal if you look.
Improving your score can make a big difference in your auto insurance premiums. If you need help eliminating your debt, there are several options available to you. The Solutions Specialists at Debt Relief can discuss your situation with you and help you find the best option to get out of debt fast!
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