The indiscreet use of credit card often leads to economic downturn incurs to an outstanding credit card debt, which later on dings the credit score. So as a result, people go for the credit card debt settlement in order to eliminate the overwhelming debt, and to improve the credit score. The credit score plays an important role in almost all individuals’ life as it determines the approval of loan. Likewise, credit score also determines the auto insurance policy.
According to U.S law, every driver has to be covered by an insurance policy. Different factors play a role in how much you have to pay for your auto insurance premiums. A few main factors are the type of car, driver’s records and experience. Aside from that, credit score is also considered to be an important factor to determine the amount of the premium. Therefore, people behind the wheel always need to have a good credit history to obtain the lower premiums for the insurance policy.
Not all insurance companies review the credit score of people while approving an insurance policy or while determining the premiums that they have to pay. But according to the insurance research firm Conning & Co., around 92% of the insurance companies consider the credit score of people while calculating the premiums for the new policies. The credit score is a good indicator of a person’s financial reliability. GMAC insurance also uses the credit score while calculating the amount of the premiums. However, the company also considers other factors like the age of a person, the type of car he drives, his driving records, his driving experience and many more.
Auto insurance companies review the credit history along with other factors to determine the approval of insurance policy because a numerous studies have shown that there is a strong correlation between a consumer’s credit history and the future insurance potential loss. According to GMAC insurance, credit score is assessed on the basis of the credit report. Only some of the information of a credit report is used to determine how much premium an individual has to pay. The information include outstanding debt, number of late payments, payment pattern, available credit and new applications for credit.
According to the Insurance Information Institute, a driver with bad credit score generates 40% more claims than the one with good credit score. Thus, this makes a huge difference in the premium. Even according to the reference website Lease Guide, a person buying insurance policy with bad credit score can expect to pay three to four times more premium than the one purchasing insurance policy with good credit.
Hence, it is to be concluded that the credit history has impact on auto insurance. Credit history determines whether you will be offered the auto insurance, and the premium to be paid.