ORLANDO, Fla.—When you buy a new car you know it is required to get your insurance coverage before you are able to drive it outside of the dealership. In the heat of the moment you know they will be asking you questions about your credit because you are buying a car, but did you know your insurance rates may be higher or lower according to your insurance score?
If you have poor credit it may affect your loan interest rates, or may even be the cause for getting declined, it also means that your insurance rates in Florida may be higher than those of people with good credit scores.
Insurance scores should not be confused with credit scores. Although it has similar criteria, such as:
- Credit history
- Number of accounts in good standing
- How many on-time payments you’ve made
- How much of your approved credit you have used
A credit-based insurance score is a rating based in whole or in part on a consumer's credit information. Florida happens to be one of the sates where, companies are allowed to use your auto insurance score to help determine the cost of your insurance coverage. A good insurance score is not directly associated with your good driving record, in fact, it has nothing to do with it.
HOW IT WORKS?
For example, if you have a high credit-based insurance score, an excellent driving history, and zero claims on your record, you'll typically qualify for lower rates. Of course, your score is only one of many factors used to calculate your premium. If you have an excellent insurance score but a less-than-stellar driving history, for example, you might be considered riskier to insure.
Most people think that a good driving record by itself is what’s needed to get the best rates, but it is rather used combined with a good auto insurance score, what in the end helps you qualify for lower rates.
Credit-based insurance scores were introduced by the Fair Isaac Corporation (FICO) in the early 1990s. FICO estimates approximately 95% of auto insurers and 85% of homeowners' insurers use credit-based insurance scores in states, like Florida, where it is a legally allowed underwriting or risk classification factor.
You should know that, according to the National Association of Insurance Commissioners, insurance companies are typically not allowed to use your credit-based insurance score as the only reason for increasing rates, denying or canceling your policy.
Know where to get your credit report and insurance score and take steps to improve it, should that be your case, because now you know it is necessary for the most important financial decisions of your life and now you know your insurance rates as well.
You should also know that as a consumer, your have rights and you should have choices. If you live in a state that allows insurance companies to use credit information, you might still be able to avoid it. The majority of national insurance providers use credit-based insurance scores, but you may be able to find a regional provider that doesn’t.
ENJOY LIFE RESPONSIBLY!