Do you know what your credit score is? As of last year, the average U.S. credit score was 695 – considered a ‘fair’ to ‘good’ score by most standards. You probably know that car insurance agencies tend to pull credit reports and FICO scores when you apply for coverage, but do you know why? According to Consumer Reports, the information in your credit report affects your insurance rates more than any other factor. They found that a less-than-perfect credit score can increase rates by twice as much as a speeding ticket or other moving violation. Continue reading as we explain what it is that insurance companies are looking for when they run a credit check.
What’s in a Credit Report?
A credit report contains consumer data about your financial activity, both past, and present. The information in a credit report is provided by creditors, who report on-time payments, late payments, collections, account balances, available credit lines, and more. Bankruptcies and foreclosures are also included on the list. Ultimately, insurers believe there is a correlation between someone’s credit and their likelihood of making an insurance claim in the future. Of all the different types of information available from credit reports, most insurers pick from about 30 of them to generate their own ‘insurance score’ and help them determine eligibility for coverage.
Generally, a credit score goes up if you pay your bills on time and handle all your financial accounts in a responsible manner. Likewise, it can go down if your credit reports indicate irresponsible behavior, such as a high debt to credit ratio or the recent pursuit of too much new credit. The good news, however, is that neither checking your own credit or letting an insurance company check it will affect your score in any negative way.
Is a Good or Bad Score Costing You?
It may be obvious that a bad credit score could hurt your rates, but could a good score be costing you, too? Ironically, the answer is, “yes.” In a Consumer Reports study, a driver with a merely good credit score paid as much as $68 to $526 more per year than a driver with an excellent score. Those with bad scores faired much worse, taking as much as $1,301 more onto their premiums.
That doesn’t mean you should be one of them. While most car insurance companies do run credit checks, not all put the same amount of emphasis on the information inside of them. By working with an independent insurance agent, you can easily shop around for a company that will provide the coverage you need without majorly penalizing you for blips in your credit history. In addition, you can periodically review your credit report for accuracy. The Fair Credit Reporting Act affords consumers the free access to a credit report from each of the three major credit bureaus once every 12 months. Visit https://www.consumer.ftc.gov/articles/0155-free-credit-reports to get your free report. If you find any errors, the Federal Trade Commission recommends reporting them to the credit bureaus in writing.