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Unexpected factors that affect auto insurance rates
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Credit rating and affordable auto insurance
It's sometimes hard to understand all the methods insurance companies employ in order to assess their risks and name their price. Apart from the obvious analysis of your claim history, driving record and car risk rating, they will sometimes use seemingly unrelated things to determine their rates. A very good example is the use of credit rating, which was confirmed by a number of insurance companies. And while the fact itself may seem strange the more disturbing part is that insurers will typically use this information without even notifying you. So you will never actually know that the insurance company accessed your credit information and used it to set a specific premium for auto insurance. Sure, this sounds very wrong and makes you want to call your lawyer. Unfortunately, insurers got it all covered and have a perfect explanation of why they need this information and why they don't inform you about using it.
Under the federal law, insurance providers have the right to perform a "soft check" (one that doesn't reflect in the report) of a customer's credit history for internal purposes withut notifying the person or disclosing this information to any third parties. So, usually, even if they check your credit rating you won't even notice it and no one will be bugging you to get a free credit report like some companies do. But it doesn't answer the question why insurance providers need your credit rating in the first place?
As it turns out, a person's credit score can be a very informative factor for determining the overall risk associated with insuring them. According to statistical observations, people with higher than average scores tend to produce less accidents and file less claims respectively, while those with the rating below the average cause more payouts. The actual cause-and-effect relation in this observation is still unclear, however some people speculate that people who are more responsible in general tend to be more careful both with their finances and while driving, and those who are less responsible produce more problems in different spheres, including auto insurance and credit rating. In any case if you have a bad rating you are very likely to get more expensive insurance rates. But how do you make it work in your favor?
The best solution is, of course, improving your credit score. There are many implications to having a good credit rating besides the ability to get cheap auto insurance. Your credit score affects many things such as loan and mortgage interest rates, credit card limits, credit line conditions and many other things. So if you actually take measures to improve your credit rating there will be many positive things coming your way. Still, it's not as simple as it may sound and will certainly require a lot of effort on your end, especially if your current score is too low. Start with a free credit report to check which aspects of your credit history spoil the rating. Make sure to pay off all debts and close unused credit lines, make all the necessary periodic payments on time and avoid questionable credit decisions. You may require the help of a financial advisor, so it's not a necessarily cheap option. But the benefits of having a good rating will certainly pay off.
Of course, you can also go the easy way and avoid insurance companies that use credit rating in their calculations. Not all insurers use this factor and you can easily determine the ones that don't by comparing quotes from several companies. If your credit score is below the average you will instantly notice the companies that take it into account since their quotes will be higher. It's certainly much easier than messing around with your credit history. But it certainly doesn't deliver a fraction of the positive effect offered by an improved credit score. So it's up to you to decide which way to choose.