When applying for auto insurance, you expect the insurance carrier to ask for your demographic information and, naturally, to pull your Motor Vehicle Report (MVR) to verify that you have observed safe driving habits in the past. But did you know that many auto insurance companies also check your credit report before issuing your auto insurance policy?
In fact, some insurers are now saying that credit history, like driving history, can indicate whether a policyholder actually acts in a safe and reasonable manner in life—which can give some insight to the way they can be expected to act behind the wheel. For instance, maxed out credit cards can indicate a certain irresponsibility that is indicative of an additional layer of risk to the insurance company if they decide to insure that driver.
It’s not a difficult leap to begin to equate fiscal responsibility with potential driving behavior and auto claims risk. Because of this, some companies use an insurance credit score to determine whether an applicant is a valid candidate for insurance and, if so, what their premiums should be. These insurance credit scores are like the popular FICO credit scores in that they look at the proposed insured’s spending history, credit limits, types of credit in use, unused credit and other factors.
If you are aware that your credit history is less than stellar or, if you have no credit history at all, then you should talk to your auto insurance agent before you apply for insurance coverage. Let him or her know any special conditions surrounding your compromised credit score or lack thereof. Your agent may encourage you to write a letter explaining the circumstances around your low-or-no credit score. This letter can be included with your application for insurance coverage for the underwriters to consider. Or, your agent may give you a quote that accommodates the additional premium you could be charged.
The fact that your credit score can impact your insurance is just another reason to regularly check your credit report and be sure that all the facts are straight. It’s also another great reason to get your credit rating under control. You may find that reducing your credit card spending and accelerating your credit card payments for a few months will give you a score worthy of the safe driver you try to be.