Credit and Car Insurance – The Continuously Raging Controversy

With the power of purchasing, comes responsibility. Most of us swing into enjoying the ‘credit’ way of life with multiple credit cards and other conveniences without a second thought. No doubt, dollars in your pocket or current checking accounts determine your purchasing power. However, one should not forget the deep penetration of the ‘3 R’ – Reliability, Respect and Responsibility. These 3 determine the way we handle our financial resources through all kinds of situations.

Since companies always pull scores to determine transaction levels, credit scores reflect these three ‘R’s. Consumers can no longer take scores lightly since they affect our very lifestyle.

Credit Impacts Auto Insurance

Insurance in general and especially auto insurance means customized services or products varying greatly with customers and service providers involved. We are subjected tonumberers of queries before we can access a quote. However, once all the basic requirements are ascertained, you can be sure your scores are going to affect your rates. Insurance is a protection for risks business where companies need information and answers to determine risks of processing customer claims.

There is a complex formula and setup to determine risks and set insurance rates. While most of the facts and figures have to do with your personal information details, scores are 3 digit numbers that often appear abstract but magically reveal a lot about customers.

Despite a constantly raging controversy over whether scores should play a role in rates, auto insurance companies continue to use them discreetly. If credit plays an important role as a rating factor, all car owners, car drivers in the United States are subject to this process. Car insurance carriers underwriting policies need to assess and price individual customer risks in each case.

Data analytics and long relied upon statistics indicate a distinct correlation between scores and policy underwriting risks. It has been constantly noted that drivers with lower scores tend to file more claims. According to a Federal Trade Commission report, the probability of these drivers filing claims increases over time. Not only that; but insurers are rightly concerned about credit challenged customers costing them twice the dollar amount in settling claims compared to those filed by higher-credit drivers.

Influence of Credit Scores on Rates and Premiums

California, Massachusetts, and Hawaii are the only states banning and making it illegal to use credit scores to determine auto insurance rates as well as premiums. But you can be sure they found a way around it somehow.

What concerns us here is that the rest of the states do not object to insurers using scores. Hence, credit challenged car owners, car drivers definitely stand to lose. Consider the following three points that indicate how much your car insurance rates will differ depending on your scores. What you pay for car insurance very much depends on how your credit ratings affect insurers computing process.

  1. Poor credit scores of 524 or below make consumers pay double the amount towards their auto insurance policies. Car owners, car drivers with excellent scores of above 800 pay half or less than half.
  2. Improving scores by even one tier – from poor to fair help saving on auto insurance premiums. These fair score drivers have saved an average 17% on annual car insurance costs.
  3. Consumers making the journey from poor to excellent scores can save more than 53% on car insurance. Reduce car insurance costs by $1,281. Unbelievable?

What You Can Do

What can you do if your scores are the culprits costing you higher on auto insurance? We have already seen that the three ‘R’s are very much in your control. You need to acknowledge them and understand their significance to your lifestyle. Behavioral changes can very much help you influence your financial situations by rooting out the problems at source.

  1. Influencing Credit Health

Treating only symptoms gives only temporary relief causing the problems to reappear. A healthy score, credit rating and credit report needs constant efforts. If you are visiting medical professionals for regular checkups, it makes sense to check your credit reports once in a while too. This will signal behavioral changes need to improve financial health. A good credit profile provides the way to enjoy better purchasing experiences. Check credit reports, take action to correct errors and set proactive goals to improve financial health.

  1. What Constitutes Financially Clever Behavior

Taking specific steps to improve scores constitutes financially sound decisions in lifestyles. Developing budgets, saving plans, consolidating or managing debts effectively while monitoring credit is of the utmost importance.

  1. Researching Market Place for Car Insurance Rates

Plenty of factors influence auto insurance rates and premiums. We cannot ignore market fluctuations caused by the overall economy. Shopping for the right coverage with the right kind of specialized insurers is a periodic necessity to keep your annual car insurance costs in control.

You will benefit from the best deals once you are back in control of your financial situation.

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