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  • Although it seems odd because insurance policies do not involve loans, a poor credit history usually equates with a higher than average premium. There are some ways to avoid this, but improving your credit is the best action you can take.

    Identification

    After years crunching numbers, insurance company data show that people with bad credit tend to have more accidents. In addition, when people with bad credit have money problems, insurance premiums are often only paid off after loan repayments.

    Considerations

    Insurance companies cannot see the reason for poor credit on a credit report; otherwise they might forgive a sudden catastrophe, such as a medical emergency, that can ruin finances. The companies simply must assume that if you have bad credit you are a greater risk, and they charge more to account for this risk, even if you were a good borrower in the past.

    Higher claim amounts

    In 1998, an academic study by the University of Texas, Austin found that people with poor credit had an average claim of $916, while people with the best credit scores filed an average claim of $558.

    Expert Insight

    Compared with other factors such as driving history, demographics and the type of car you drive, credit history makes a fairly limited impact on your insurance premium, according to CarInsuranceRates.com.

    Tips

    You can avoid taking a hit on insurance with bad credit by looking at insurers who do not perform credit checks. However, make sure their rates are competitive and that they offer the amount of coverage you desire.

    Source:

    CarInsuranceRates.com; Does Your Bad Credit Have An Impact On Your Insurance Rates?

    MSN Money Central; Weston, Liz; How bad credit costs you with insurers

    CarInsurance.com; Finding Car Insurance with No Credit Check

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