If you do not possess the perfect driving record, don’t despair. One major factor in determining the premium of a personal automobile policy is your credit score. According to FICO (Fair Isaac Corporation), a software firm that measures consumer credit risk, approximately 95 percent of insurers use an applicant’s credit history (his or her insurance risk score) to help determine what insurance tier to place the consumer.
When a consumer applies for auto insurance, the insurer asks permission to pull applicant’s credit information. A credit report is secured from one or more of the credit bureaus: Equifax, Transunion or Experian. A consumer may obtain a copy of his/her own report by visiting http://www.credit.com or according to the Federal Trade Commission, you may obtain your credit report by doing one of the following:
1. To order, visit annualcreditreport.com
2. You may call 1-877-322-8228. You need to provide your name, address, Social Security number, and date of birth. If you have moved in the last two years, you may have to provide your previous address.
3. You may also complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
Please note: The credit bureaus are providing FREE annual credit reports only through annualcreditreport.com, 1-877-322-8228 or mailing to Annual Credit Report Request Service.
Credit scores range between 300 to 850. If your score is below 650, you may have trouble getting insurance or have to pay a higher premium. In order to improve your credit score, keep in mind the following factors that influence the score.
Payment history: The largest factor is credit and loan account payment history. 35% of your total FICO score is based on your payment history. A steady record of on-time payments going back several years shows responsibility.
Debts owed: The number of accounts you currently have, including type and balance. 30% of your FICO score is based on your amounts owed. Try to have just a few active accounts with low balances.
Length of credit history: 15% of your FICO score is based on your credit history. The longer your credit history, the better.
New accounts: 10% of your FICO is based on new credit. Every time you apply for a new account, a record of that application appears on your credit report and drops your score. Limit the number of applications you submit.
Credit mix: 10% is based on the types of credit in use. A credit mix of home loan and one credit card will likely result in a better score than someone with seven credit cards.
Negative records: Collections, judgments, and bankruptcy filings will drop your score.
Please be aware that mistakes on your credit score can happen. If you need more information on how to correct you FICO score, please visit: www.myfico.com
We hope this article was helpful in unveiling the mysteries of how your auto insurance premiums are calculated.