We all use auto insurance to secure our vehicle no matter whether we want it or no. Auto insurance is mandatory and there’s no way going around this fact unless you’re bold enough to go against the law and risk driving without insurance. There are many things that will affect the cost of your insurance most of the factors dealing with the car and its characteristics, while some of the factors can also use your personal data to determine how good of a driver you are. Yes, by knowing your place of residence, age, sex, marital status and education the insurance company can tell how it is likely for you to have a traffic accident. They all have enormous bodies of statistical data on their hands and they know what they’re saying. However, some factors may seem odd and even bizarre to be used for determining your auto insurance rates and credit rating is definitely one of them.
If it comes as a surprise to you, yes, insurance companies use the customer’s credit rating when calculating their rates. Not all of them, but a large part definitely do. And they don’t have to tell you about it. If you’re furious and think that they are breaching your privacy the law is definitely on their side since state legislation allows the insurance companies to use such data without disclosing it to third parties. So, instead of raging about the fact let’s look into the logic of it. Why would the insurance company want to use your credit rating to determine auto insurance costs, how’s this connected? There is a connection and you wouldn’t see it coming unless you’ve had such an enormous pool of information as a typical insurance company.
It was observed that the number of claims filed by the customer is statistically linked to his or her credit score. The better is the rating the less likely it is for this particular customer to end up in an accident and file an insurance claim. And respectively, the lower is the score the more likely it is for the driver to require coverage. So the insurance companies decided to use this relation when calculating their rates because they will use just any piece of information in order to determine their risks and manage them through auto insurance rates. It seems that if a person is responsible in what concerns their finances they are also responsible and cautious on the road. At least this explanation seems to sound logic just to explain the relation between auto insurance claim risks and credit scores.
Now, what if your credit rating is not as good as it could be? Your auto insurance rates will be higher than the average and that’s definitely not what you want these days. The most logic solution would be finding an insurance company that doesn’t use credit rating when determining their rates. They are less than those that do, but they are still around to make a presence. Another solution, more demanding yet more effective, would be improving your credit rating. Hire a financial consultant to review your credit report and determine the strategy for improving your score. This solution will have more benefits than just auto insurance cost optimization, since it will be much easier and cheaper for you to take loans and credits with a better credit score.
