Is a credit check necessary to obtain affordable auto insurance quotes?

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Joel Ohman
Founder, CFP®

UPDATED: Jul 17, 2016

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While most consumers consider an insurance company to be in the business of protecting their assets, insurance companies themselves consider their industry to be one of assessing risk. They’ll certainly help consumers recover their losses after an accident or another incident on the highway, but they are primarily concerned with the likelihood that any given customer will cause such an incident.

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In making these considerations, a consumer’s credit score and credit history are two key ways to determine whether or not they’ll be filing a claim with the company during the course of their policy. Research has shown, numerous times, that consumers with lower credit scores or more derogatory items on their credit reports are more likely to be in an accident than these insurance policyholders who have sterling credit reputations.

Finding Affordable Car Insurance

The reasons for this are unknown, but the correlation seems to be rather hard to disprove. For this reason, a shoddy credit history will cause an insurance company to charge a slightly higher premium on those insurance customers who have had financial problems in the past. There are a few ways to get around this, or compensate for the increased rate, that consumers should know.

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Contact the State Department of Insurance

Every state has a regulatory body which certifies individual insurance agencies on a yearly basis (or slightly less frequently). This agency is responsible not only for documenting an insurance company’s financial position and their ability to pay on insurance claims, but also for documenting how an agency does business, how it determines its premium rates, and what its average premium is for consumers in that state.

Calling the state Department of Insurance is a great way to find out whether a company requires credit information to get a quote, and whether or not that information can be used to lower or increase the price of a premium.

Customer representatives who work for the department can even search through their database in search of those companies which do not base their policy rates on consumer credit histories and credit scores.

Bypass Direct Involvement with the Agency by Using a Broker

Another way to potential escape the damaging effects of a credit check is to use an insurance broker when shopping for policies and delivering policy payments to the insurance agency a customer chooses.

This is because, in many cases, the broker acts as a “middleman” and a payment processor, helping the customer eliminate the risk posed to the insurance agency if they simply do not pay their bill. After all, the likelihood that a low-credit customer may not pay on their policy is a big part of the reason why their insurance premium is higher than other customers.

When seeking the service of an insurance policy broker, inquire as to how they handle payments and whether or not their service will allow an exemption from standard insurance agency credit checks. Remember to be honest and open about credit problems, as these individuals are employed to help the consumer, not the insurance agency. We can help you understand how car insurance brokers work.

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Prove that Bad Credit Poses No Risk on the Road

The essential goal of an insurance agency, as stated earlier, is to assess risk and charge consumers a rate which compensates for the amount of risk they “inject” into the pool of drivers that an insurance agency covers. Bad credit means that a customer poses more of a risk on paper, but that may not be the case in reality. After all, even excellent drivers can encounter unexpected financial hardship.

When applying for insurance, be sure to highlight a number of things which point toward a safe driving record.

This can include an accident-free history on the road, a defensive driving class, driver’s education courses, and other ways to prove that bad credit does not equal a bad driver. In many cases, the insurance company will issue discounts for these things that will more than compensate for a poor credit history.

Always Compare Car Insurance Rates

Remember that car insurance is not a monolithic industry; every insurance company offers their own unique assessment of the risk a driver poses to their corporate bottom line, and that can lead to big swings in policy coverage levels, monthly payment amounts, and the amount of emphasis which is placed on a poor or even sterling credit reputation.

Online car insurance comparison tools help consumers view the differences between each insurance company in a convenient, single-webpage format. This makes it easy to see where the best car insurance rate comes from, how it is determined, and which factors might have caused a company to charge an elevated rate for coverage.

Remember: Bad Credit Does Not Equal Bad Driver or Bad Person

Financial hardship happens. It’s important to examine all avenues when signing up for car insurance, as this required liability coverage can be had for low rates even with a less-than-stellar financial history at the major credit bureaus. Always compare rates, investigate the services of a broker, and contact the state regulatory agency for more questions about how credit may, or may not, impact the amount that car insurance companies can charge.

With the right information and the protection of state officials and issuance brokers, consumers can enjoy discounts on their coverage even as they work toward a brighter financial future.

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