While shopping for auto insurance, an individual always aims for lower cost of insurance. In that case a good credit score may help to lower the cost. Credit score is a statistical method of evaluating an applicant’s credit worthiness. Companies are always trying to pool that part of the consumers which will provide the maximum profit with minimum loss. So they try to judge the rate of an insurance policy against the actual amount of claim. It has been found that almost all auto insurers use the credit information to decide whether to issue a policy. They even set the premium level on the basis of the credit score.
The companies generally do not look at the actual credit report. They just look out for the credit score. In fact they receive the credit score from any of the three major national credit depositories – Equifax, Experian and TransUnion. Credit scoring is a method to determine the likelihood that credit users will pay their bills.
Credit scores are prepared by analyzing a borrower’s credit history. The factors considered while calculating a credit score are:
- The duration for which credit is used.
- The amount of credit used versus the amount of credit available.
- Record of whether payments are made in time.
- Employment history.
- Length of time at present residence.
- Negative credit information such as bankruptcies, charge-offs, collections, etc.