How Your Credit History May Affect Your Auto Insurance Coverage

When charging premiums, car insurance companies take into consideration various factors. But perhaps the most important of all these is the credit history. There is a reason on why they do this. The past credit behavior of a person may have some impact on his credit behavior in the future. Car insurance companies have no other way of telling how a certain consumer uses his credit card. It is only through the credit history that they can derive the potential behavior of a consumer. With this, they will have the idea on whether the consumer will suffer car insurance losses in the future.

Some car insurance companies consider other factors such as driving history, type of vehicle, age and location. However, other companies simply resort to credit history. So if you have not yet established a strong credit history, then you may not opt for those companies who take this into high regard. If you continue to apply to these companies, you may end up losing eligibility for discounts and you may incur higher premiums.

Some people may question on whether or not car insurance companies have the right to look at credit information. In fact, they do. As the Federal Fair act indicates, it is okay for car insurance companies to look at such information provided it is for a reasonable procedure and that they will ensure confidentiality and accuracy of the information.

Car insurance companies may take a look at various elements of your credit history. Some of these are your name, address, social security number and date of birth. But perhaps the most important factor is the so-called “insurance credit score”. This encompasses the likelihood that a consumer will incur higher losses. The car insurance companies usually employ statistical methods and methods to determine this score. This helps them in knowing if a car insurance applicant is capable of paying the loan.

The credit score is computed using different factors. One of these are the public records which may include your status on bankruptcy, foreclosures and charge-offs. Others are past payments history, type of credit in use, length of credit history, number of open lines of credit, unused credit and inquiries for credit.

These are just some ways on how your credit history can help car insurance companies decide on whether or not to give you discounts or higher premiums. So if you’re new to the credit world, it is better if you make sure that you have a clean credit history. This can help you a lot in the future as you apply for auto insurance.