I’m 24, live in the sticks, and have a spotless driving record. It irritates the hell out of me when, on one of the car or bike forums I visit, there’s a thread on people’s insurance rates and some people my age or younger pay far less for insurance than I do, sometimes less for full coverage than I pay for liability. I’ve taken the type of vehicle into account too, although usually it’s the same type as mine anyway. I can’t figure out why I’m getting hosed. I can’t remember why, but a few days ago the idea popped up that maybe credit has something to do with it. I talked to a few folks and the ones with bad or little credit seemed to be the ones that paid more. The sample size was too small to come to an accurate conclusion though. So tell me, do credit scores affect insurance premiums? What, other than what I’ve mentioned, can affect them? I just financed a bike, so I’m hoping I can build up my credit and maybe quit getting raped by insurance companies. Then again, maybe they go by last name or something.
Keep in mind that insurance companies, banks etc. rely heavily on real-life statistics to set rates. These statistics would include looking at people with different credit scores (which is a sophisticated statistical model in its own right) and seeing what the overall accident and claims rate is for each group. They then base premiums based on those statistics.
That doesn’t mean that every person that goes into that group is a bigger risk than those in other groups but it does mean that the group as a whole has a bigger risk than others. Groups are all insurance companies care about because they have to match premiums with claims with some profit for that group.
It is easy to imagine why people with bad credit are a bigger risk for most accidents than those with higher credit scores. They are harnessing an easy measure of how well people manage their life as a group. Frankly, they could discover that people that have poodles are more likely to kill someone in an accident and raise rates based on that. It is just a raw numbers game. It doesn’t apply to everyone but it works as a whole.
Aha! So they make me pay extra because I pay for everything with cash because I don’t like borrowing money. I could rant all day about how awful the credit system is, but this isn’t the forum for that. On the bright side, the situation should be improving now that I have a source of credit. (In fact, I financed this bike almost solely so that I could build credit.} Thanks guys.
Smart move. Establish credit for something you need and know that you will be able to pay off because it is a life necessady. Play there game if you want to win.
Here is a good FAQ about how insurers use credit scores.http://www.insurance.wa.gov/factsheets/factsheet_detail.asp?FctShtRcdNum=16 . Remember, though, your insurance credit score is not the same thing as your FICO score, although the scores will usually be highly correlated. Insurers have their own scoring models, so the “score” will vary among insurers.
By bike, do you mean motorcycle?
Does this happen to be a little Japanese or Italian number with an engine that displaces a liter or more?
If so, just be glad your insurance is less than your rent. Those things can be wicked expensive to insure, especially in your bracket.
By the way, next year, you’ll hit 25, and if you were like me, 30% would come off of your premiums overnight.
Well, why would someone lend money to someone who has no record of paying it bacK? If they did, they’d be wise to protect their sale (the sale of money to you) by jacking up the interest rate to get to the break even point sooner. The interest rate is jacked up via the lower credit score.
Additionally, lending money is a business. It takes time and money to lend money or extend credit. If I were running a business that lent or extended credit, I would go bankrupt lending to people who avoided any interest/fees. I would have no profit and all costs.
Most states recently have introduced some sort of legislation to ban the use of credit scoring in setting insurance rates. However, not all these bills pass, so over the next few years, we’ll have to see how this insurance reform trend goes.
Yeah, Philster, but he’s not talking about loans but rather insurance premiums. Nothing more to add – that justification was satisfied above.
This page includes a summary of recent regulatory and legislative responses: http://www.iii.org/media/hottopics/insurance/creditscoring/
Well it’s a Japanese make with letters and numbers for the model, but the engine is much smaller than a liter. It’s a Yamaha YZF600R. I’m not surprised that full coverage on the bike is about double what liability is on the car. I bet it would be cheaper than full coverage on the car, despite it being an old car with little value. I just get irritated when I see other young people in my car club with the exact same car as me paying $200 to $300 a year for insurance when I pay about $800 and I can’t tell why. Now I know at least one possible reason.
I really hate the whole credit setup, but I guess I have no choice but to play their game. Some things I understand, but sometimes I think they just want to screw me over. I don’t want to turn this into a rant though, which I can easily do when talking about credit. Thanks for all the information.
If you can swing it, pay for the period of insurance that covers your 25th birthday. I got the 25 year old discount by paying up front for 6 months that covered my 25th birthday when I bought my first new car at 24.
When I was 24 I had a spotless driving record and was paying $130 for full coverage on my new car. A year later I turned 25 and got married and my bill was still just a little over $100. I went to the website of the same insurance company and pretended I was a new customer. They offered instant online quotes and based on all the information I provided, my quote was $58 per month. So I then called customer service to renew my coverage and was told that they couldn’t honor the $58 quote because I wasn’t a new customer.
So I switched insurance companies and ended up paying $80 for the next 6 months, then switched back to my old insurance company, and since I was a new customer again, I was charged just $58 per month. I’ve been with the same company for 5 years now and they’ve only raised it to $59.