What Is the Relation between Insurance Rating & Credit Score?

By now it is a common knowledge that most companies look at credit score when they give quotes. However, we often here another term called insurance rating and cannot help but wonder if it is to mean the other or there are differences between the two. This post will try to define them and clarify the position, as well as explaining what carriers are trying to achieve with these figures.

The simplest and quickest explanation is that the latter is derived from the former. They serve different purposes although insurance credit rating is based on the score, which measures credit worthiness of a person and used when someone applies for a mortgage, loan, card or other similar facilities. On the other hand, insurance rating tries to determine possible risk of claims in personal lines like home and auto. It is essentially a point system calculated with select credit score components (not all).

It is probably safe to say that both would return similar results and if one is good (or bad) the other would be the same. One of the major differences is that people can check their score whenever they like. However, rating systems are proprietary and they are not shared for many reasons. Various companies may use different models and modify them to suit their needs.

One of the reasons for their secrecy is that underwriting view and opinion is included when coming up with insurance rating scores. Lately, more and more of them are trying to utilize predictive technologies to see if they can diagnose the exposure and nip it in the bud. And they probably do that by pricing riskier drivers out.

The real problem is that when they look at personal finance records when calculating quotes the result may be that they are pricing poorer motorists out because they are more likely to have money problems like late payments and mortgage arrears.

In other words, your financial standing may be viewed differently depending on which company you apply for a quote. Some of them offer large premium discounts to motorists who manage their money well. And few others may not even check it. Each will probably look at it regardless of including it in price calculations or not if you propose to pay in installments, as it is considered offering lending facility. Technically, premiums are due at the start of a policy and they would be lending you money when they allow you to spread the payment.

When you have serious mortgage arrears or bankruptcy to your name you will need to look for those companies that may not penalize you for them. You may need to talk to an independent broker about it and ask them find you an affordable vehicle insurance coverage. They will have enough experience in dealing with similar situations. Alternatively, you can look online for proposal forms that don’t have the score related questions.

Unfortunately, your life is under scrutiny by employers, bank managers, landlords and auto insurers. They all can check the financial position by applying to credit agencies and obtaining details. As a result of these checks their decision would be affected positively or negatively. This is something that has become a fact of life in an ever information hungry world we live.

The good news is that credit can be improved with a little effort. You should start with obtaining it first and seeing what the problems are and where you stand. You can request the record held by three agencies once a year. Then, you can start following the tips laid out in the article above. It may take some time but you will get there eventually, unless you have a serious problem like county court debt judgment or bankruptcy. Unfortunately, they take time to clear off records.

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