Credit History and Car Insurance Premiums
One thing I learned in this latest round of automobile insurance shopping is that credit scores and premium determinations go together like peanut butter and jelly. Long gone are the days of my driving record being the primary factor that my insurance company uses when quoting my rate. Nowadays, insurance companies use two things when quoting my premiums: my credit score, filtered through a proprietary risk assessment metric, alongside my insurance score.
According to CBS News, the best credit score to have is anything above 720. Folks with scores below this range are considered higher insurance risks -- and being higher risk isn't a good thing. High-risk clients are likely to pay as much as 25 to 50 percent higher premiums than drivers with credit scores of 720 or higher are.
Why is this? Simply put (as referenced in a Drive Steady info graphic), individuals who are more responsible with money are considered to be more inclined to be responsible on the road, more likely to make timely payments and are proven to have fewer traffic violations than sub-par credit drivers.
My insurance score is the assessment of how likely I will be to file an insurance claim, and is a big factor in my premium determination. This is a three-digit number (ranging from 150 to 900) that insurance companies use to assess your driving risk, based on your history on the road and a variety of market demographics. The good news is that having a good insurance score, saves money.
Shopping for Insurance
Knowing what I now know about these scores, I also knew that I could log on to my Credit Karma account (free) and attain both my credit score and my insurance score before I started shopping. This would give me a better idea of where I would fall in the insurance game -- and give me a clear indication if it would be worth it to shop around at all.
Thankfully, I had a credit score of 770 and an insurance score of nearly 800. This put me in an optimal category to go shopping for rates.
Using this information, I obtained three different automobile insurance quotes, using the discounts I had in place with my current insurance company as well as any other proprietary discounts offered by the competing companies. In the end, I wound up switching policies, thanks to a $70 monthly drop in my premium payments (saving me $840 per year).
Of course, if I had a client who didn't have stellar scores, I might tell them to drop out of the insurance shopping race at each renewal, until they had rehabilitated their credit. However, I'd take it on a case by case basis.
Regardless, doing my homework before shopping for a new policy wound up saving me big bucks in the end, and it might do the same for you.
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