Credit History Makes a Difference
Insurance companies use credit scores to set the amount you pay for your insurance policy. The higher your credit score, the lower your insurance premium and the lower your credit score, the more your policy will cost.
Setting insurance rates is about predicting behavior. Erratic or careless money management suggests an applicant may not be careful in deciding how to behave in other situations, such as forgetting to change the oil or not fixing a leaky pipe in a loft. Here’s what the Insurance Information Institute says: “People who manage money carefully may be more likely to have their car serviced at appropriate times and may also more effectively manage the most important financial asset most Americans own their house, making routine repairs before they become major insurance losses.”
Late credit card payments and too many cards with balances can bring down your credit score - and lead to higher insurance rates.
The raw credit score is not considered alone. An insurance score typically weights factors such as timely bill payment over how much you owe. Companies look at a range of characteristics, though the law bars them from considering race, sex, marital status, national origin or religion, and compare the applicant to a group of similar people. They use scoring models to assess their risk in taking on a customer and set rates accordingly.
As a group, people who have low insurance scores account for a high proportion of the money paid out in claims. Tillinghast, an actuarial consultant firm, documented a 99 percent correlation between insurance scores and loss ratio. And the Federal Trade Commission, in a study released in June 2007, concluded a correlation exists between insurance scores and the likelihood of filing an automobile insurance claim.
Insurance applicants with good credit typically see reduced rates than those with a bad track record. Of course, traumatic events such as illness, divorce and job loss also can affect payment history and impact credit scores. These events are not blameworthy and the application of statistical models can seem cold. The good news – when applying for insurance, credit and payment history over the previous 12 months matter most.
Paying attention to your credit history will pay off handsomely.
Give us a call and we can help you get the best deal possible. We know New York City inside and out and work hard to make sure all of our customers have the best possible coverage at the lowest possible cost.
Jeff Schneider, President, Gotham Brokerage Co., Inc.
