Did You Ever Wonder? Insurance Q & A

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By Harvey Brown Special to The Pineapple Question: Does my credit rating affect my auto insurance premium? Answer: Absolutely! Your credit rating is part of your “Credit Score” which is the greatest factor in determining how much you’ll pay for auto insurance. All of us have seen and heard many lighthearted and entertaining insurance commercials on TV, radio, online and on the web claiming they will save you a lot of money on your car insurance. The first thing to know is any auto quote you receive online, over the phone, or in the mail is just an indication of what you might pay. That quote is not binding, meaning the premium figure you receive is probably not the final premium you will pay unless every aspect of your life, including your credit and claims history, is stellar. Until the insurance company runs all of your reports, including your “credit score” and your “CLUE” report, which references your insurance claim history, your quote is usually just a best-case possibility for auto insurance. I personally am not a fan of those “teaser” premiums in ads as I think they often lead to disappointment for the insured. Why do the final premiums often change from what you were quoted? While many insurance companies act lighthearted in their ads, the business of insurance is a serious business. The insurance industry is facing shrinking margins, so insurance companies have to be very careful to price their product properly. Only the Federal government can print money; everyone else has to make a profit or the lights go out! The key pricing tool developed by the auto industry over the past 30 or so years is called “credit scoring”. Credit scoring is a complex program which takes into account many variables of your financial life and the resulting “score” is an indicator of how desirable you are as an auto insured. The better your credit score, the more preferred pricing you will receive. And conversely, the worse your credit score, the more you will pay. It’s that simple. Now please understand your credit score is not your credit rating, but your credit rating is a component of your credit score. Clear as mud, right? What can you do to improve your credit score? One thing I tell my clients is to have no more than two credit cards (any combination of AMEX, Mastercard, Visa) and to get rid of their gas cards, department store cards, and home improvement store cards. Revolving credit lines work against you and your credit score. That means even those attractive “12 months same as cash” offers are not good for your credit picture; they are in fact lines of credit and show up on your credit report as open loans. When your credit score improves, you become eligible for more preferred pricing on your car insurance and the savings can be huge. We have seen situations in our office where two seemingly similar insureds, with similar ages, demographics, cars, and coverage limits, paid very different premiums, due solely to differences in their credit scores, even though they were insured by the same insurance company! Ask your insurance agent what he or she recommends you do to help lower your auto insurance premium. Pay as much attention as you can to your credit situation and you could see real savings on the cost of your auto insurance. Next Month: Hiring Insured Contractors