UPDATED: Mar 13, 2020
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This might come as a bit of a surprise to you, but it is a fact that many auto insurance companies are starting to do credit checks before awarding auto insurance quotes. If your credit score is bad, there is a good chance that you might see very high premiums on your auto insurance. In some cases, you might even be denied an insurance policy if your credit score is less than stellar!
Is Basing Car Insurance Rates On Credit Score Fair?
Auto insurance companies have long been basing car insurance quotes in part on credit scores. They claim that there is a direct correlation between credit scores and the likelihood a car insurance policyholder will file a claim. On the other hand, consumers feel this is unjust, and with the current economic crisis, more and more drivers should see an unfair hike in their car insurance premium as their credit scores deteriorate.
Those for Using Credit-Based Insurance
A few years ago, the Federal Trade Commission released a report proving that there is a direct correlation between credit scores and car insurance claims. The report also showed that, overall, African-Americans and Hispanics had lower credit scores. With credit-based car insurance rates, people in these demographics will be forced to pay more for car insurance.
Insurance industry experts say that using credit scores to determine a quote is just smart: car insurers want to determine the risk of insuring a given driver and using credit scores helps determine the level of risk. Car insurance companies feel that charging those with lower credit scores will help them cover future losses.
Those Against Credit-Based Insurance
Opponents of credit-based insurance pricing claim that basing car insurance rates on credit scores is as bad as basing it on race or economic status, simply because the two are intricately tied together. Advocates state that one’s credit score affects in no way his ability to drive, and should not play into what a consumer pays for his car insurance.
Race-based insurance premiums once existed, but have since been banned. Many hope credit-based premiums will soon follow. With so many Americans unemployed or otherwise suffering from the economic decline, it seems overkill to charge a premium for one of the necessities of life — car insurance — to someone who needs it most.
There have been proposals to ban credit-based car insurance presented to Congress and the Senate, but with such strong resistance from insurance companies with deep pockets, getting these proposals passed may take years.
Getting Credit-Based Insurance Pricing Banned
Don’t stand idly by if you want to remove credit scores from the criteria car insurance companies use to determine your rates. Contact your Congressman and let him or her know that you want to see changes (soon) on this subject.
How To Get Cheap Insurance Despite Bad Credit
A bad credit score could spell doom for your car insurance rates. This is because historical data seems to suggest that people with bad credit scores are also the people who usually have bad driving records. It was also found that people with bad credit scores were more prone to commit insurance fraud (which is why auto insurance companies shun away from people with really bad credit).
However, one can have bad credit out of unfortunate circumstances that might not necessarily make it fair for the insurance companies to charge them higher premiums. There are two ways to work around this “low credit score problem”.
The first one is to improve your credit score. A credit score that is less than 600 is generally considered bad. The first thing to do when you find out that you have bad credit would be to request a credit report. You can get one for free by law. Once you get it, analyze it to see where your credit score took a beating. Most likely, it might have been due to some late payments that you might have made or some payments that you might have skipped. Address those issues immediately and there is a good chance that your credit score will improve as soon as you do.
Another way to work around a bad credit score would be to pay insurance premiums up front. Some insurance companies will only do a credit check if you wish to pay in installments. However, companies that give out insurance policies without doing credit checks will usually charge more than insurance companies that do credit checks. It will be in your best interest to get your credit history sorted out before approaching an insurance company.
Save money by shopping around
Even if you are being presented with expensive auto insurance quotes due to your credit score, you can still stand to save money by choosing the least expensive of the insurance companies that are willing to give you insurance. One of the best ways to do that would be to research online where it will be possible to get insurance quotes from several different companies in one place and in just a matter of minutes.