You've probably heard that in some vague way, your credit score has heard something to do with their car insurance company that requires premiums for coverage. But if you're like me, you've probably never understand the details of how this work.Blame in FICO
Used to be, the fee for the insurance of the car has been paid related mainly clear risk, want to pay that your car damage and ask the insurance company for this demographic and personal factors have linked: things like age, gender , marital status and driving history. It is no surprise that young, single men are surprised to be as a driver Soccer Moms rather risky and have to pay higher premiums. But about 20 years ago, people Fair Isaac Corporation (FICO) found a correlation between low credit scores and increased risk of a safe is not claim.That causality, of course - you do not somehow bring bad credit your car to crash. But according to FICO, "People who choose to effectively manage their finances are less likely to have insurance to cover future losses." On the contrary, there is a "statistical correlation between the credit score of a person and the likelihood that he or she submit a car insurance claim in the future." News flash: Everyone makes
Since then, the insurance companies have used this finding to change the prices by insurance in the bill. Insurance Quotes Today said, "about 97 percent of the insurance companies in America" to do it.
But how exactly do they do?
InsuranceQuotes.com wanted to know, so I ran a few tests, ask for an estimate for a hypothetical insurance client with the following attributes:
Age: 45
Gender Female
Marital status Single
Accident history: No Guarantee
The history of insurance: no gaps in coverage.
Essentially Insurance Quotes began with the ideal candidate. Neither too young nor too masculine to be dangerous drivers. Clean driving record. Only the person who you would expect from an insurance company to be considered low risk and offer lower insurance premiums. Now let's see what happens when their credit history changes with their rates.
Excellent "points credit insurance" (not the same as a FICO credit score): none
Median Score: Prima increases by 24 percent
The worst grade: Prima increases by 91 percent
Ignorance is not happiness
As you can see, there are some pretty serious money at stake. But according to a report in 2005 by the Government Accountability Office, about two-thirds of consumers surveyed had no idea that your credit score can affect your insurance at all prices - much less cost almost twice as bad credit.
It really pays to know the truth about it. And the truth is that if you are among the two-thirds who do not know the details of how insurance companies use credit history to determine your rate - and if you are a customer of one of the 97 percent participation in practice companies - you are likely to pay through the nose for their ignorance.
Fix that
What we know to know about the functioning of the system? Not so much.
Individual insurance companies have information on their pricing policy in the vicinity of the vest, call their methods for setting rates of trade secrets. Worse, according to the former Insurance Commissioner of Texas Bob Hunter, now director of insurance at the Consumer Federation of America in Washington DC "Each insurance company uses this different result."
But there are some general rules that seem to be true to be in any industry.
Expert FICO Subscription InsuranceQuotes.com Lamont Boyd said that only two factors account for approximately 70 percent of the assessment of the credit-based insurance to use the insurance, to their prices fixed. In detail:
30 percent of your score depends on "the amount of credit card and loan debt you how much you are entitled to borrow, to have compared."
More importantly, "40 percent of the notes to the financial results of the individual consumer will be driven mainly by paying on time or not their credit obligations."
Other entries include the length of credit history, collections, bankruptcies, and loan applications.
Knowledge is power
With this knowledge, we can suggest a few simple rules - but not necessarily to protect against this practice in the insurance industry - at least minimizes the risk of being uprooted.
First rule: that your credit card not to limit, and always ensure that you have a large amount of credit available. This does not necessarily mean closing credit card accounts, because you (the available credit would reduce, even if it risks eliminating advantageous credit accounts, long) more cards require. The key is to have plenty of cushion between the actual amount owed and the roof of your credit limit.
Second rule: Pay your bills on time.
The Extreme option: If all else fails, you may want to move to California, Hawaii, and Massachusetts. After InsuranceQuotes.com, these three countries are the only countries which prohibit the practice of setting insurance rates based on credit scores. (Even if two of these states have other drawbacks: In a summary of the status of the national average insurance costs expensive car, California, came in at number 7 and No. 15. But falls in Hawaii Massachusetts bottom third, priced, at number 35)
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