Credit Ratings Affect Your Insurance Premiums?

Credit Ratings Affect Your Insurance Premiums?

What is a credit rating?

Credit rating reflects the credit worthiness of a person. It helps a lender or an insurance company know what are the loan dues or arrears he has had in the past. Are there any bankruptcy filings, has he filed for county court judgement etc? In case he has dues, his scores will be negative. An insurance credit score is developed by using statistical techniques and methods to predict the likelihood a consumer will have a higher than anticipated loss. These are similar to what lenders use to predict the reliability of an applicant repaying a loan.

This is used while adjusting the policy premiums, determine a person’s capacity to pay back etc. Even a mortgage lender considers this score before determining the loan rates or EMI.

How can this be obtained?

Your credit worthiness level can be obtained from a credit report agency. These will maintain a record of your loan dues, bankruptcy filings, arrears and county court judgements if any. In case you have paid back all your pending bills, you must get in touch with them and obtain a positive score.

What affects these scores?

These scores will be affected when you have a lot of pending bills, be it mortgage, loan, credit bills etc. Any bankruptcy filing and county court judgements will also affect your credit worthiness.

These scores are affected by:

– Your saving pattern
– Your expenses
– Ability to pay back
– Debt
– Arrears
– Bankruptcy filings etc.

How does this affect your car insurance premiums?

If your scoring is negative or poor this reflects your poor credit worthiness. Your car insurance company will consider you as a risky candidate who may default on the payment of insurance premiums. Hence, you will be charged a higher premium due to this negative scoring. Therefore, get your scores corrected in case there are any discrepancies it will affect your policy premiums.

Companies feel that there is a direct relation between consumer’s credit history behaviors and expected claims that may occur. Few of the insurance companies will look directly at your actual credit reports when determining your rate, however most will use what is called an “insurance credit score”. An insurance credit score is developed by using statistical techniques and methods to predict the likelihood a consumer will have a higher than anticipated loss. These are similar to what lenders use to predict the reliability of an applicant repaying a loan.