Why Does A “credit Rating” Have Anything To Do With Auto Insurance?
To be honest I don’t feel that a persons credit rating have anything to do with car insurance. A quote should be an honest quote of what it cost per month and per year. Either you pay your car insurance or not. What risk is this to the Insurance company? It can be canceled by the company if payment is not made. The company doesn’t pay for an accident that occur if the policy is not in force. There is no loss to them. What is the point of making someone pay a higher premium if they haven’t had an accident nor was it their fault. This is unfair racking it in. Who made this policy to base it on your credit rating? The economy is in a depression right now so many people will have bad credit ratings and those who have fallen into this mess now will have higher payments and have never had an accident or it wasn’t their fault. They are not responsible for the deficit we have today. All rates should depend on Make, Model and Year of your car. A Credit Rating has nothing to do with paying your monthly amount for coverage. Can you tell me why, if no accidents have been caused? It doesn’t have a feasible answer to me.
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February 5th, 2010 at 9:16 pm
In a nutshell, (statistically) people who have a poor credit score are more likely to file a claim.
Actuarial studies show that how a person manages his or her financial affairs, which is what an [insurance score] indicates, is a good predictor of insurance claims. Insurance scores, plus other factors such as age, driving record, make and model of your car, and how many insurance claims have been filed in the past, are used to help insurers differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming.
The goal of every insurance company is to correlate rates for insurance policies as closely as possible with the actual cost of claims. If insurers set rates too high they will lose market share to competitors who have more accurately matched rates to expected costs. If they set rates too low they will lose money.
Some states ban the use of credit scores as a consideration. This might been seen as benefiting those in lower economic groups — but others in the risk pool are subsidizing these people (from a statistical perspective).
February 6th, 2010 at 12:05 am
darn good question!!!!!!!!!!!!!!
February 6th, 2010 at 1:38 am
Let’s say I need some fast cash. The economy is in a depression right now and so many people will have money problems. I can have a single car accident, damage it slightly but still be drivable. I can use the money for what I needed instead of getting the car fixed.
Insurance is a ‘shared risk’ system. You are not individually insured. Your premium is based upon the group you are in, the type of driver you are, the type of car you drive, where you live, how much you drive, etc. Also, people with credit problems fall into one ‘shared risk’ group. Young drivers are in another, people who drive for a living (truck drivers) again in another. Old people are still in another, and so on. Low risk drivers should not have the same high premium payments as high risk drivers.
It has been proven that group association relates to insurance risk.
If I live in the boondocks, I’m less likely to have a collision with a car than if I were in the big city. My premiums will be lower.
February 6th, 2010 at 7:19 am
Besides the other reasons listed above that people file more claims when they have poor credit, another one would be that if a person is not responsible with their finances, there is a good chance they are not responsible with their driving habits which makes it risky. Its actually kind of funny and true because I used to have really bad credit and i used to drive completely crazy….i could never do the speed limit. But now i am older, i have great credit and I never go over the speed limit. Funny how that works huh?
February 6th, 2010 at 8:29 am
The REAL truth is, the data shows that people with lower scores put in more claims, and those claims cost more money, than people with higher scores.
To the best of my knowledge, there are NO STUDIES saying WHY low score means higher/more frequent claims – so anyone who says, “that means you’re less responsible” or “that means you won’t maintain your vehicle” is GUESSING.
The insurance companies, frankly, don’t CARE why lower credit scores mean more claims dollars paid out. They don’t care WHY 16 year old boys have more accidents than 26 year old women. The REASON doesn’t matter – the FACT is, the relationship between low scores and higher claims, in large groups of people, is established – which is why you pay more for insurance if you’ve got a score under 650, OR, if you’re a 16 year old boy.
It’s not at ALL about, whether you pay your premium or not. That doesn’t matter. It’s about predicting future losses. 48 insurance commissioners in 48 states have agreed that low credit predicts higher losses.
This isn’t new, either – credit has been used in rate determination, in varioius states, for about 10 years now.
March 7th, 2010 at 12:22 pm
fix credit…
I will have to tell my girlfriends about this place….