An insurance Quotes commissioned study has revealed that credit can significantly impact the amount of money paid for automobile insurance. It is seen that poor credit could even triple the rate. According to the study, a person having fair credit will pay about 28 percent more compared to a driver enjoying excellent credit. Poor credit means a doubling of the premium. The rate in that case will increase by about 104 percent. The problem is that most consumers have no idea that credit history can be a major factor when searching for affordable auto insurance.
The use of credit to fix premiums, however, is not new. The practice started in the early 1990s. An overwhelming majority of American Insurance companies use a method termed CBIS or credit based insurance score. The CBIS is utilized as a rating factor in every US state with the exception of California, Massachusetts and Hawaii.
The CBIS is different from other consumer credit scores. The score range starts from 100 and goes up to 999. This parameter is used only by the insurance companies. A number of factors from the consumer credit report goes into it. According to actuaries, higher CBIS means less possibility of filing any claim. It means higher CBIS means a lower insurance rate for your car.
Use of data
Lamont Boyd of Fair Isaac Corporation says that the credit centric insurance score is made using about 30 different financial data aspects which are collated by major credit bureaus. These include outstanding debt, late payments, bankruptcies, credit history length, collections and new applications regarding credit. Approximately 40 percent of any consumer’s CBIS is calculated whether if the credit obligations get paid on time. Second most important factor is the amount of loan and credit card debt a consumer has when compared to how much the person is permitted to borrow. This makes for approximately 30 percent of scoring model. The closer you max your credit card, the more negative your score will be impacted.
Insurance companies are loath to disclose the particular ways they utilize CBIS to craft new policies. Consumers, unlike traditional credit scores, have no method of accessing CBIS. This is due to the fact that different users utilize a number of different scoring models for setting the premiums. Regardless of different models used, studies have revealed that they significantly impact the auto insurance.