Many car insurance companies take your credit information into account to deduct the insurance premium that you will have to pay. Therefore, if you are looking for new car insurance, keep in mind that they will review your credit history. Here’s how and why they do this.
How do insurance companies calculate the premium amount?
Basically it is because there is a direct relationship between the behavior of the credit history of consumers and the potential claims that they can make. Therefore, they consider that people with better credit histories are less likely to file claims with auto insurers.
Insurers also look at other factors to determine your insurance premium. They can also monitor your age, driving history, what type of car you have or where you live, to perform these calculations.
Hence, if you do not have good credit, these insurers will not be the best for you, since it is very possible that they will not consider you for certain discounts, all of which results in the payment of higher premiums.
If you estimate that your credit score does not correspond to what the insurer thinks, you should make sure that that company has your correct information, that is, name, address, social security number and date of birth.
How to calculate your auto insurance premium?
The method auto insurers use to determine insurance rates is known as the “Insurance Credit Score”. Thus, they predict through statistical processes and techniques the consumer’s probability of having higher or lower losses in advance.
These are some of the things that insurance companies check to determine your credit score:
- Public Records: Bankruptcy filings, collections, liens, foreclosures, indictments, etc. are taken into account here.
- History of delayed payments: The amount and regularity of late payments are reviewed, as well as the time elapsed between the due date and the payment made.
- Credit history time: The time the consumer has been in the credit system is considered.
- Credit applications: The number of times you have applied for new credit, also includes mortgage loans, utility accounts and credit cards.
- Number of credit lines open: The number of credit cards that the consumer owns are considered, whether they are used or not.
- Types of credits in use: The type of credit cards will be observed, if they are from recognized companies, stores, or loans from financial companies.
- Available credit: Here your debits are compared in relation to the credit you have available.
It is important to clarify that the score of auto insurance credit it may vary depending on the insurance company you choose. They all use different factors to determine your monthly payment, as already mentioned. For these reasons, it is difficult to define what a good or adequate credit score might be. Typically a favorable score will mean cheaper premiums.
Obligations of the interested party
The insurance agent, or the company, is not required to tell you what your credit score is. They may not even know it. The information that they take into account the most is whether your score qualifies for a certain premium or policy. Some car insurers will offer better rates based on different rating levels.
If you believe that your credit report has incorrect information, you should contact the credit bureau and file a complaint. With the error report in the procedures, it must investigate and give you a response within 30 days. You can ask this company to send a correction notice to the auto insurer, or credit company that has analyzed your file in the last 6 months. Once the errors have been corrected, it is advisable to request a copy of your credit report several months later, to ensure that the incorrect information has been rectified.
The three national credit bureaus in the US are:
- Trans Union (www.transunion.com or 800-888-4213)
- Equifax (www.credit.equifax.com or 800-685-1111)
- Experian (www.experian.com or 888-397-3742)
We suggest, in case you are reporting an error, do not wait patiently for the bureau to contact the auto insurance company. Go to the insurance company immediately and ask if the mistake will affect your insurance situation. If the error is large, tell your company that you are fixing the information and ask if they could wait for it to be corrected, then she will consider your credit report. Small mistakes may not affect your credit score much. If they are notable, then it is possible that they will make a significant difference in the premium that you will have to pay.
Some insurance companies do not adjust the amount of premiums until the credit score has been corrected. Therefore, you should never stop claiming in these cases.
If you have taken into account the steps to improve your credit score, you should require your insurance company to reevaluate and renew your credit situation.