Is car insurance rate affected by credit rating?


You may be surprised that your payment habits will also affect your car insurance premiums. And yes, failing to pay for your bills for a month or two will have a considerable impact on your premiums.

This is what is called credit scoring in the insurance industry. Missing payments on two or more financial obligations (including loans and credit card bills) may mean an increase in premiums up to as much as 50%!

When you apply for your car insurance policy, the insurance company will evaluate your credit standing and use this as one of the criteria for setting your premium rates.

Good Credit Ratings = Good Driving Habits?

The principle behind the use of credit rating as a basis for premium rates lies on the belief that someone who is careful in managing his money and financial responsibilities will also be careful on the road. And really, this has been proven true, according to experience in the insurance industry.

It is shown that those with good credit rating follow traffic rules more carefully and also implement safety measures. They also tend to install anti-theft and safety devices. In addition, they tend to use their seatbelts and make sure that their passengers are properly secured as well.

Bad Credit Ratings = Higher Risk?

Not only are those with bad credit ratings considered higher risks on the road. The insurance industry also sees these to have the propensity of filing nuisance or unnecessary claims or inflating claims (quoting for a higher claims amount compared to the actual loss).

Take Care of Your Credit Rating

Thus, you need to be careful about your credit rating, because it will affect not just car insurance rates, but also the rates for other products such as homeowners or renters insurance.

The insurance company will look into: instances of bankruptcy, foreclosures, and liens, as well as past payment history.

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