Why Some Car Insurance Companies Conduct Credit Check Before Giving A Policy?

Auto insurance companies assess several factors related to the applicant before giving a policy. They want to make sure the person will be able to pay the premiums on time and carries lower risks. A credit check is the first thing they do in this process. It helps them determine if an applicant is the right candidate for their auto insurance policy. If you cross this hurdle, you will still face some challenges but they are minor bumps and can be managed. A low credit score is a big problem when applying for any loan or insurance policy but some insurance companies are ready to relax their rules for people with low credit score.

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Why Do Car Insurance Companies Conduct a Credit Check?

This check helps them determine if a policyholder is likely to pay all premiums on time. More importantly, they want to eliminate the risk of an applicant filing a claim. All insurance companies hold the view that a person with poor credit score and record can be a big risk. They suspect the person is more likely to file a claim. Their research shows a strong correlation between insurance claims and credit record. It means people with poor financial and credit history are more likely to file claims.

Credit History Is Not the Only Criteria

The application for a car policy is not decided solely by the credit history. Many other factors are taken into account. Even when you have poor credit history, you can still get the policy if you fulfil other criteria of the insurance company. Your driving record plays an important role in it. If you have maintained a good driving record, you are more likely to get approval for your auto policy. The place you live, the type of vehicle you drive, and your age are other factors that decide if you will get this policy. Insurance companies are within their rights to reject an insurance application if the applicant does not fulfil their criteria. You will receive a discount for safe driving if you have maintained a good and clean driving record. Higher rates apply for individuals with both poor credit history and bad driving record.

A Different Credit Assessment

The credit assessment for insurance is different from the assessment done for a loan or credit card. Insurance companies will look at your financial and money management record to determine your eligibility and risk. They will check if you have been paying your bills on time, filed for bankruptcy before, and faced collections. You will receive a higher premium if you have a bad or limited credit history.
Why This Credit Inspection Is Sometimes Necessary?Undergoing this check increases your chance of getting the auto insurance policy, especially if you have a good credit score. Your credit score is not impacted with this enquiry because it is considered a soft enquiry different from a hard enquiry that people undergo when applying for a credit card or loan. It gives you peace of mind because you can compare and shop around for the best rates. You can submit multiple insurance applications at a time.

Improve your credit score before applying for a car insurance policy. You will not only get lower premium; your policy application will be processed faster as well.