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Credit – The Hidden Insurance Rate Factor

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INSURANCE RATES

I once heard the saying “a good credit score is the foundation to your financial life”.

While it is a given that your credit score affects the interest rates of things such as car and mortgage loans, did you know that your credit score also affects your automobile insurance rate? In fact, in the State of Florida, some people with bad credit can pay almost twice as much as those with excellent credit! This is true even if you have a perfect driving record, with no at-fault accidents and traffic citations!

When I found this out, the first thing that came to my mind was WHY?

After doing a little research, I found my answer. Unfortunately, insurance companies are businesses with the overall goal of making a profit. When determining your insurance rate, they look at different factors that will raise the potential risk of them having to pay money out on a claim. Somewhere, economists have found in a study that there is a correlation between low credit scores and insurance claims. As a result, your credit rating is one of the many factors that insurance companies look to.

In my opinion, a person’s credit score is a discriminatory risk factor that should not be included in an insurance company’s risk assessment. Others agree with me – states such as California agree, and their state legislators have made it illegal for insurance companies to use credit as a factor in determining auto insurance rates.

Until the elected officials in the State of Florida follow the model employed by California, insurance companies will continue to disproportionately affect individuals with lower credit scores by making them pay more for their automobile insurance. So in the future, keep in mind this additional incentive of keeping a good credit score, as it can add up to thousands of dollars in savings over the years.

If you feel this blog is informative, feel free to hit the like button and share with someone else. Creating awareness one reader at a time.

Sources:

http://www.esurance.com/insurance-resources/credit-score-myth

http://money.cnn.com/2013/10/29/pf/credit-score/

http://www.libertymutual.com/customer-service/faq/auto-insurance-questions/credit-scores-and-auto-insurance

http://www.nationwide.com/car-insurance-premiums.jsp