The Mystery Of Insurance Scores

When car insurance companies calculate the rates on your policy, they use an actuarial formula that yields your individual insurance score. This formula uses your credit history to determine your score. Unfortunately, it's not as simple as directly translating your FICO score into auto insurance rates.

Controversy Over Using Credit Scores

Despite the auto insurance industry's argument that a person's credit score is an accurate reflection of how responsible they'll be on the road, many consumers are critical of the practice. They point out that good drivers often have poor credit scores. They further contend that the ebb and flow of local economies can exert financial pressure on consumers.

Clean Up Your Credit For Lower Rates

The most effective way for consumers to raise their insurance scores (thereby, lowering their auto insurance rates) is to take measures to improve their credit scores. That includes paying bills before they're due. If any accounts are in default, they should be paid or otherwise negotiated with the merchants. Credit card balances should be kept under 50% and no more than 3 cards should be kept active.

Credit Worthiness And Driver Responsibility

The reason that car insurance companies use your credit history to help determine your premiums is because they consider it a good barometer of your responsibility on the road. They feel that people who show a high level of responsibility in managing their personal finances will be similarly responsible while driving. This effectively implies a lower degree of exposure for auto insurance providers.

An increasing number of carriers are doing so. By being proactive in maintaining a clean credit history, you can enjoy lower premiums.