Credit ratings and auto insurance

Insurance and taxes are two of the things on most people`s list of least favourite things but did you know that your credit rating affects how much you pay for your auto insurance?

The majority of motorists have an idea of the main things which insurers take into account when calculating a premium such as make, model and age of car as well as the size of its engine and value. However, insurers also base their premium on statistics regarding an individual`s gender, age, marital status, driving record and other demographical factors. This information is used to calculate the probability of an accident occurring and a claim being made. For example, a young driver aged under 25 will be more likely to have a prang that a middle aged person with a good education…according to the statistics anyway.

One of the demographical factors included in the premium calculation is the credit record of the driver as the insurance industry claim that a lower credit score has been shown to be linked to a higher tendency to claim.

Whilst this is great news for those with a good credit score, drivers who have a less than perfect credit history may well feel aggrieved at the generalisation which is hiking up their insurance premium.

The good news for those who feel the practice is unfair is that there are several firms out there who have opted not to include credit scoring in their premium calculations. However – a word of warning – insurers do not always make it obvious that credit history is being analyzed for an insurance application so if it is not clear, it is worth asking.

Even if your credit rating is somewhat blemished it may not be necessary to avoid insurers who include this factor in their premium rates. Although every insurer tends to take into account more or less the same type of information in their ratings, each factor is given a different weighting by companies. In other words, whilst two companies may both ask about past driving record, one may include the answer as a core piece of the premium calculation whereas for the other insurer it may be just a peripheral piece of data which affects the premium very little.

As credit scoring has only been included in auto insurance calculations for a relatively short space of time, there is a vast difference in how the different insurers treat the information. For some, the difference between an applicant with an untainted credit record and one who has a chequered financial past may be minimal.

Therefore, for those trying to obtain a lower insurance premium, it is a good idea to set aside some time specifically to research companies on the internet and get some online quotes. Aside from price, it is important to check other factors such as size of excess and policy benefits as one that looks quite cheap could be relatively poor value. It is possible to surf each company`s website individually but a good place to start is a credit card comparison site as most also include a section on insurance and have a comprehensive database..

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