Bad Credit Insurance
Many people make the mistake of accumulating poor credit scores before shopping for insurance, never understanding the consequences of a poor credit score on their insurance premiums. Insurance companies have a number of criterion that help determine the price of each policy for each customer. While some people are naturally higher risk (those with poor driving records, for example) others are determined to be poor risks due solely to their poor credit scores.
So Why Does Your Credit Score Matter?
Insurance companies are in the business of spreading risk around. In this process, insurance companies have to develop data about their customers, and are frequently forced to generalize or even stereotype which customers will be the highest risk. Young male drivers are considered to be higher risks and have higher insurance premiums, even with perfect driving records. Young female drivers, even with one accident or speeding ticket, might even have lower premiums than a young male with no accidents or incidents. The name of the game is balancing risk, and insurance companies have turned it into a science.
Credit ratings are considered into risk algorithms for one very simple reason: those who have low credit ratings do, on average, claim more against their policies. Also, those with lower credit ratings are said to be riskier. If you can't take care of your personal finances, why can the insurance company trust your driving, home maintenance, or a myriad of other things?
Not all insurance companies account for credit scores in their premiums, but many do. As many as ninety percent of all insurance companies consider credit scores, so if you have a poor credit score, it might be wise to shop around until you find a company that doesn't take them into consideration.
Type and Length of Insurance
Beyond the simple cost of premiums, insurers also take credit history into consideration when deciding how much insurance to extend to applicants or whether to renew a policy.
A car insurance company may offer only very low insurance amounts--state minimums--to those with poor credit history. High deductibles should be expected as well, since low credit ratings usually mean more insurance claims. High deductibles, of course, are some of the best defenses for an insurance company against undo risk.
But most importantly, do not forget the importance of a credit score even during an ongoing contract. With most policies now reviewed and renewed each year, the happenings between when the policy was issued and the year following may affect anything from premiums, coverage, and even your ability to buy insurance.
Tracking Your Score
The best way to avoid any potential insurance pitfalls is to play smart personal finance defense, and stay on top of your credit ratings and reports. Most people have a number of errors on their credit report, some of which may be beneficial and others which may be detrimental to your score.
Staying on top of your credit score is easy thanks to a law which requires the three major credit reporting bureaus to provide you with a copy of each report upon request, once per year. This can be done through the website annualcreditreport.com, and is the only free way to access your credit reports.
Getting Bad Credit Insurance
Insurance companies will usually sign on new customers with bad credit, but be prepared to make some serious changes in your personal finances to get your credit score back in shape to keep your policy. Insurance companies are happy to insure people, that's how they make their money, but you, as a person with bad credit, only look like a liability, not an asset. Show your insurance company that you're an asset, make your payments on time and take a thorough look at your credit report before shopping. You might just find that your bad credit rating was not the result of your own doing.