What Is the Relation between Insurance Rating & Credit Score?

By now it is a common knowledge that most auto insurance companies look at your credit score when they are giving you a quote. So, what they are actually looking at? It can be confusing and one may be taken as to mean the other. Here are the questions you might have. Is insurance rating the same as credit score? What are the differences and similarities if they are two different things?

The answer is that Insurance Credit Rating is different from Credit Score in several ways. Although insurance credit rating is based on credit score, they serve different purposes. Credit Score measures credit worthiness of a person and used when someone applies for a mortgage, loan, credit card or other credit facilities. Insurance credit rating tries to determine possible risk of claims in personal insurance 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 you will have a good insurance score if you have a good credit score. Credit score is something people can check whenever they like. However, insurance credit scoring systems are propitiatory and they are not shared for many reasons. Various companies may use different models and insurance companies can have their own methods.

Furthermore, your personal finance records may be viewed differently depending on which company you apply for a quote. Some car insurers offer large premium discounts to people who are in good financial position and manage their money well. And few companies may not even check your records. Every firm will probably check your credit history if you propose to pay the premiums in installments as it is considered extending credit. Premiums are due at the start of the policy in theory and the company would be offering you a credit facility when they allow you to spread the payment.

When you have serious mortgage arrears and 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 companies who don’t have credit score related questions in their quote form.

Unfortunately, your life is under scrutiny by your employer, bank manager, landlord and auto insurer. They all can check your 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 score can be improved with a little effort. You should start with getting your credit report first and see what the problems are and where you stand. You can request your credit 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 serious credit judgment or bankruptcy to your name. Unfortunately, they take time to clear off your records.

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