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Does The Credit Report Score Affect Insurance Costs? |
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Your credit report score can play a role in the premium you are offered. This is a somewhat controversial practice not used by all insurers, but I still want you to be aware and prepared. Some insurers have figured out that if you have a good credit record you're less likely to make claims. And if you're bad at managing your debt, there's a likelihood you're going to be an expensive driver to cover. A University of Texas study found that drivers with the worst credit report score had auto claim losses that were more than 50 percent higher than the average claim, while the claims of those with the highest credit report score were 25 percent less than the average. There are many factors that determine insurance rates, many of which are beyond your control, but there are some things you can do to minimize the damage to your pocket. Studies have shown a correlation between financial history of a person and his/her future insurance loss potential. As a result, insurance companies incorporated the use of claims history and credit report score in their pricing and underwriting to enable them to offer insurance coverage to more consumers at a fair cost. Your credit report score can put you in a lower or higher rating tier. By knowing your claims history and credit report score, you can learn how to reduce your insurance premiums over time. Customer Credit Counseling Service (CCCS) suggests reviewing your credit report and credit report score annually. Find out what your credit report score is, check to make sure your information is accurate, and determine what steps you can take to improve your credit report score. Consumers can obtain their credit report online. A credit report score is a numerical ranking based on a person's credit history. Actuarial studies show that how a person manages his or her financial affairs, which is what a credit report score indicates, is a good predictor of insurance claims. Credit report score is used to help insurers differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming. Statistically, people who have a poor credit report score are more likely to file a claim. A credit report score predicts the average claim behavior of a group of people with essentially the same credit history. A good score is typically above 760 and a bad score is below 600. People with low credit report score tend to file more claims. But there are exceptions. Within that group, there may be individuals who have stellar driving records and have never filed a claim just as there are teenager drivers who have never had a crash although teenagers as a group have more accidents than people in other age groups. Most people benefit from insurance scoring because most consumers manage their debt well and therefore have good credit report score. Credit-related activities within the last 12 months are given most weight. In some insurance companies, underwriters have long used credit records in cases where additional information was needed. Before the development of automated credit scoring systems, underwriters would look at the data and make decisions, often erring on the overly cautious side that disadvantaged many more people. Automated insurance scoring and underwriting systems eliminate the weaknesses inherent in someone's personal judgment and have allowed more drivers to be placed in preferred and standard rating classifications, saving them money. With the development of these scoring models, the use of credit-related information in underwriting and rating for many insurers has become routine. Insurers use your credit report score to different extents and in different ways. Most use them to screen new applicants for insurance and price new business. Insurers need to be able to assess the risk of loss the possibility that a driver or a homeowner will have an accident and file a claim to decide whether to insure that individual and what rate to set for the coverage provided. The more accurate the information, the closer the insurance company can come to making appropriate decisions. Credit report score developed by credit scoring company Fair Isaac involve a set of from 15 to 30 credit characteristics, each with an assigned weight, that produce a credit report score ranging from 100 to 999. The lower the credit report score, the greater the risk. According to Fair Isaac, 76% of consumers exhibit good or fair credit management behavior. |
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