What does credit have to do with Insurance?

Many people think that insurance companies say people with bad credit have more accidents. This is not correct. The truth is typically people with bad credit have many many more missed payments, lapses, cancelations, or other issues in general. Why does this matter? Insurance companies spend millions of dollars in taking care of these clients a year.

For example.. Let’s say the average customer service rep makes $12 hr.  Usually the folks with many issues will have at least 4 service issues a year. It may take that CSR 1/2hr then they need to escalate it to the company and then the company now needs to pay their employee another $12 hr. plus they usually have to take it up another level as well. This all costs the company lots of money reducing the profits of the policy hence a rate increase.

People with perfect credit may complain about a few dollars of an increase but they rarely ever call in for service issues.

When people pay their bills on time everyone wins. With the recent economic downturn many folks lost their perfect credit but they still pay their bills on time. The best way to never miss a payment with your insurance company is to have your funds taken out of your account automatically every month out of your CHECKING ACCOUNT not a debit card. If you have the funds taken from your debit card their is a higher chance of a lapse because your card expires every few years. Forget to call your insurance company and your policy will lapse for nonpayment.

If you have zero credit cards you are going to pay a much higher rate than someone with a few credit cards. Capital One has a new card that they offer that is designed to help people with not so good credit establish new credit. The rate is high but then again you are probably paying an extra 30-40% for not having credit. Until you fix this vicious cycle you will never win.

I advise my clients to carry 5-8 active lines of credit to have a great insurance premium. If a company says they do not base off credit I have to disagree and show you that they probably automatically charge all their clients an extra surcharge. One way or another, insurance companies look at credit.

Use an insurance agent that will actually spend the time to help you find out why your rates are the way they are! If you are paying over $125 a month for less than $100/300/100 something is wrong!