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Insurance companies review their customers’ credit rating just like banks or other creditors do in order to determine how much of a risk they are taking on by offering you an insurance policy. A low credit score can affect your insurance policy in several different ways.
1. Higher Down Payments
While many auto insurance companies offer monthly payments for the customers, you may not be given the option for low monthly payments if your credit score isn’t up to par. Insurance companies see individuals with lower credit scores as higher risks, just like banks do. If you auto insurance provider thinks you’re less likely to make your monthly payments on time they might require that you pay for your entire policy up front to save themselves from possibly sending out late payment reminders and cancellations for non-payment.
2. Say Good-bye to Preferred Status
Many insurance companies have a number of subsidiaries that they write insurance through. They might have one company with all of their preferred customers, one for there standard customers and one for higher risks. If your credit score is low be prepared to find yourself in the higher risk category and pay more for insurance while being locked out of additional benefits that preferred customers might receive, like accident forgiveness.
Insurance companies pull credit scores for existing customers on a regular basis just like they do for new customers. If your credit score takes a dip you might face a notice that your insurance company will not continue to cover you past your current policy period. If receive a letter stating your company will no longer cover you be prepared to shop around for a new insurer.
Looking for a new insurance company is often more difficult for customers that have a low credit score. If an insurance provider thinks you are too high a risk for their taste they might make you pay more for insurance, or they may refuse to offer insurance to you at all. If an insurer denies you coverage keep looking until you find a company that will give you affordable coverage and work on increasing your credit score so your insurance rates will benefit.
5. Higher Deductibles
Because customers with low credit scores are considered at a higher risk for making claims on insurance, your insurance company may not offer you the option of carrying low deductibles. Even if your auto insurance provider has $100 deductibles available for some of their customers you might find yourself resigned to $500 deductibles or higher. The good news is it will help keep your rate a little lower. The bad new is you will have to pay more out of pocket if you make an insurance claim.
Work on improving your credit rating you find yourself facing one or more of these situations because of a low credit score. Making payments on time, paying down credit card balances and paying off loans are all ways you might be able to improve your credit score.
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