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Lowering Auto Insurance Rates
We've all heard the recommendation from the insurance industry that one of the best ways of saving money on car insurance is to watch your credit score. This is due to the fact that approximately 90% of all insurance companies use "Risk Scores" to determine who they will issue a policy to, with over 50% of these companies using these risk scores to determine premiums. The insurance industry contends a direct correlation exists between financial responsibility and insurance claims. "Risk Scores" are developed by inserting your credit score and credit history into any one of a number of secret scoring models. (No one knows for sure how many of these models exist. Hundreds of companies use the ones provided by Fair Isaac or Choicepoint, but since there are no set standards, many insurance companies have developed their own.)
Regardless of how they're derived, the scores are supposed to predict who is more likely to file a claim. The more likely you are to file a claim, the higher your insurance rates. Watching your credit score is fine advice if you have perfect or near perfect credit. Unfortunately, it does little to help the 1,112,000 Americans who filed for bankruptcy last year or the millions who have below average credit. For these people, trying to find affordable auto insurance can be a very real problem, with monthly insurance premiums equaling or surpassing monthly car payments. Even those who have excellent credit may still pay higher premiums just because they applied for a loan, a credit card, or obtained some other type of credit within the previous year of receiving their insurance policies. If all this sounds a little unfair to you, you're not alone.
Twenty-two states have tried to enact legislation that would control the use of "Risk Scores." As expected, due to the strength of the insurance lobbyists, most of this legislation has either been dropped or watered down to the point it does little to protect the consumer. Three states, namely California, Hawaii and Massachusetts, have stepped up to help all consumers, especially those with less than perfect credit by banning the use of credit scores and history in determining insurance policy acceptance and premiums. That's great news for people who live in those states but, aside from moving, how are the rest of us able to save money on our auto insurance? Choose an insurance company that does not use "risk scores." Nearly 10% of insurance companies don't use this scoring policy. Their premiums are based upon your driving record, not credit score. These companies tend to be smaller, but what they lack in size they more than make up for with excellent customer service. Some cater to specific organizations or professions. Most have "A++" to "B+" financial ratings, which means they will be there if and when you ever need them. As good as these companies sound, remember to keep one thing in mind: even though these companies don't use credit scoring to determine premiums, it doesn't mean you'll automatically receive a lower premium. Chances are that you will, especially if you have credit problems, but you still need to shop around and compare prices. Just make sure you're comparing the same coverage from each insurer. The only down side to using these companies is finding them. They don't advertise the fact they don't use risk scoring so you may have to do some investigating on your own. You can start by contacting your state's insurance department.
Some states, like Michigan have a listing of insurers operating within their state that do not use credit scoring. This list is updated on a yearly basis, and most of these companies are licensed in various states. Contact the insurers you are interested in (you will need to do a web search for their sites) to see if they operate within your state and ask them for a list of local representatives. Since these companies are smaller, policies are usually sold through independent agents who represent a number of companies. I understand in this time of 30 second e-quotes this may seem like a lot of extra work, but finding your insurance premiums dropping by $500 or more per year is well worth the extra time and effort it takes to seek out these companies.
Eric Orzel is the author of the e-book "Inside Auto Insurance - Everything you need to know before you buy." In it he details the essential information needed to make sure you never over pay on auto insurance again.
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