The Lowdown on Car Insurance for Bad Credit
Just because you have a bad credit score does not mean you cannot apply for car insurance. According to the website of Wausau, WI car accident attorneys, people with bad record can still qualify for car insurance by simply researching their options. When getting a credit card, leasing a car, or obtaining a home loan, you very well know that the credit score can have a huge impact on your chances of getting approved. As far as credit companies and car insurance providers are concerned, they use different methods in computing car insurance scores.
Car insurance companies use credit-based insurance scores and not credit scores. Credit-based insurance scores does not have a huge impact on your job, income history or other personal information. The data is used by car insurance companies to help determine the possibility of a future insurance claim.
Credit scores, on the other hand, are determined from information from the credit report and are used by lending firms to determine the capability of a borrower or lender to promptly repay a loan. For auto insurance providers, credit-based insurance scores are used for determining the eligibility of payment plans as well as insurance rates. They then combine this with the borrower’s driving record. This means that even if you scored high on the credit score but with an atrocious driving record, it is still possible for you to be considered a risky borrower.
So why do car insurance companies used credit-based insurance scores than credit scores? A 2003 study conducted by The University of Texas revealed that people with lower credit scores had the tendency to incur more car insurance losses and higher claims payout thus making them more riskier to auto insurance companies.
In another study this time conducted by the Federal Trade Commission, it was revealed that credit-based scores proved to be more effective predictors of risks. Since it was more sensible to use credit-based insurance scores, car insurance companies opted to use this method for determining risks and insurance premiums.