You probably know that your credit score can have a significant impact on your ability to get a loan, qualify for credit cards, and buy or even rent a home. In some fields, bad credit can prevent you from getting a job. What you may not know, though, is that your credit history can have a substantial impact on your insurance. These are just a few ways your credit history can affect your insurance.
Impact Your Credit History has on your Insurance
Denial of Coverage
Depending on the company and how low your credit score happens to be, the insurer may elect to deny coverage altogether. Even if you already have insurance, the company may decide not to renew your coverage when the time to renew your policy comes along. In a country where everyone is required to have auto insurance, this can be a true hardship.
Credit History Affects the Cost of Insurance
There are only three states that have protections in place for consumers preventing insurers from using credit scores when assessing rates: Hawaii, California, and Massachusetts. Throughout the county the difference in coverage costs based on credit history alone can be greater than $2,000 annually. According to Consumer Reports, the average difference in premiums for good vs. outstanding credit is $214. It’s even greater for those who have blemishes on their credit reports or have gone through unexpected life circumstances that negatively affect their credit like unemployment, extreme medical bills, or a long hard recession.
What Does Credit Have to Do With Your Ability to Drive Safely?
That’s a great question! Insurance companies deal in risks. They develop complex formulas to assess your risk to them. Just as you never hope to need insurance when purchasing it, insurance companies hope you’ll never need it either. They use these formulas to determine the likelihood of you filing a claim. Your credit score happens to be one of the tools they have found to indicate the likelihood that you’ll be in an accident or have your vehicle broken into.
The irony is that insurance companies are under no obligation to inform you of the reason that your coverage is denied, your premiums increase, or they elect not to renew your policy. Very few even acknowledge that credit plays a role.
Mitigating the Impact of Your Credit Score on Your Insurance?
If you have poor credit or are just starting out in life and have no credit, it can make be difficult to make the changes necessary to lower your insurance rates right away. There are things you can do that will help to ease the pain of higher premiums related to bad credit. The first thing you need to do, though, is work to build a better credit history for yourself.
Ask for an extraordinary circumstances exception. While this isn’t a “get out of credit jail” free option for everyone, it can help people who had otherwise good credit until one event took place. It could be the result of a job loss during the reception, a storm in which they had insufficient insurance coverage, a prolonged illness that accrued massive medical expenses and an inability to work, and other circumstances beyond your control that affected your ability to maintain good credit. Unfortunately, not all states have made these provisions and they are extended on a case by case basis.
Compare prices between insurance companies. As long as you are making “apples to apples” comparisons, this can help you identify companies that are more accommodating for a few credit blemishes than others. As a consumer you can choose who you do business with. Refuse to work with companies that aren’t willing to work with you.
Your best option is to work with an independent insurance agent. Your independent agent is able works with several different insurers to find the one that offers the best combination of cost and coverage on your behalf. This will ease the sting of a less than perfect credit record on your auto insurance premiums.