For many drivers, the long list of factors influencing auto insurance rates remains to be a mystery. You probably realize that things like where you live, accidents and your prior claim has the potential to affect your rates. But you may not be aware that your credit history can, too.
Considering an auto insurer’s profitability depends on its ability to set rates based on the probability of policyholders claiming an insurance loss, most auto insurance service providers are always looking for new ways to better predict this information. And that’s where credit-based auto insurance scores come into play.
For those who might not know, insurance scores are simply numerical scores used to predict the likelihood that you’ll have an accident or fill out a claim. They are mostly calculated from information on your credit reports. Auto insurance providers use count on them as one of many factors to determine how much you’ll pay for car insurance in states where that is allowed.
Like with credit scores, many companies have now come up with their own auto insurance scoring models and formulas. Be sure to check with your auto insurance company to see what auto insurance score it uses and who offers it.
Now let’s take a quick look at how insurance scores are calculated. Each auto insurance service provider uses its own methodology to interpret the credit information that builds your insurance score. For this reason, insurance score ranges and how they affect rates remain unknown.
Having said that, some auto insurers purchase credit-based insurance scores from companies like FICO. This company uses factors like payment history, outstanding debt, length of credit history, pursuit of new credit and mix of credit experience to determine its auto insurance scores.
In the event that you feel like an insurance score may be negatively affecting your insurance rates, it doesn’t hurt to shop for better car insurance rates from time to time. It is then that you stand a better chance of finding a cheap auto insurance service provider you can always leverage.