What Effect Does Bad Credit Have on Insurance Premiums?

What Effect Does Bad Credit Have on Insurance Premiums?

If you have a bad credit score, you are likely to be charged a higher rate as far as insurance goes. Car insurance, for example, can be up to twice the amount if you have a bad score. While the advantages of having a good score are numerous and well known, not many may know that higher cost is the main drawback to bad scores. There exists an actual low credit score penalty for those applying for auto insurance. The actual amount and how they calculate it is a bit of a mystery still, but it can be costing you, if you have bad credit up to hundreds of dollars every month, more reasons for you to contact a credit repair company and get your scores sorted out.

What goes into a premium calculation?

The amount quoted in the ads or in offers are almost never actually offered to customers, this is because there are a number of other variables that go into the formulas used to come up with the final amount and it is complicated. For the most part, insurance providers do not like to make payments or give away money, so they make sure cheap insurance is given out only to those who are not likely to file claims. Your car, age, driving record, gender, age, and the neighborhood you live in also play a major part in deciding your premiums apart from the credit score. The issue, however, is that all of those variables are more or less constant, except for the credit score, and can hike up the payments by up to 91%.

Everyone has to pay

Unless all of the mentioned variables are within the safe bracket and your score is excellent, not good, but excellent, will your insurance premiums be at an acceptable rate. A study found that those with bad credit can be paying on a yearly basis, sometimes more than the amount paid for a DUI conviction. In the same study, made by Consumer Reports, it was found that a single driver from New York will pay $255 more per year when they have good credit, even when their driving records are near perfect. Floridan drivers with clean records, but bad credit paid $1552 more than their peers with similar records, but better credit scores. If that seems unfair, it was found that widowed women were charged, on average 14% more than married women!

Why is it done

It seems quite obvious that a person’s driving habits, the way they drive is unrelated to their shopping habits or the way in which they handle credit cards. They are non-driving factors and should not be considered, you may reason, but insurance providers think otherwise. How a person manages their finance is one indicator of how often they make claims and the primary reason for bad credit hiking premiums. One insurance company has even said that credit scores are a much more accurate predictor, much more than a driving record.

Credit repair services

There are a number of ways to fix this issue, effective immediately and the first thing that you should think about is credit repair. If you hire a credit repair service to look into your reports and make the necessary alterations, your credit score will increase and your premiums can reduce dramatically. Once your scores have improved, make sure you are not stuck to one insurance company, shop around, make comparisons and above all, be wary of the terms of the contract. Make sure you know exactly what you are signing up for before you put your signature on the dotted line and make sure you’ve found a top reviewed credit repair company to help you with the credit repair process.

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