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Many auto insurance companies examine consumer credit information when deciding whether to issue or renew an insurance policy and how much to charge for vehicle coverage. Since bankruptcies can hurt a consumer’s credit history for up to 10 years, this means a person who has one on record is likely to see higher insurance prices.
The reason why credit information is used to help rate drivers is that many insurers and government organizations have found statistical links between individuals’ finances and their risk of being involved in an accident. Because premiums are largely based on the likelihood of someone filing a claim, a poor score could easily translate into higher costs.
When someone is in poor financial standing, affordable auto protection is often harder to find. In sample premiums for 17 companies provided by the Nevada Division of Insurance (DOI), policy costs for a 30-year-old female motorist living in Las Vegas skyrocketed when credit quality went down. In the DOI’s example, when the motorist shifted from having the best possible score to the worst possible score, the premiums offered by the 17 companies increased an average of 103 percent, rising from $1120 to over $2204 for the same policy.
Restrictions on credit scoring
Credit scoring (or insurance scoring) is a standard practice in nearly every state, but there are limitations to the practice. Under federal law, motorists are entitled to a free report if any company takes action against them, which includes denying their application for vehicle coverage. In many states, such as Missouri, insurers are required to inform motorists if their credit information has lead to an adverse action, such as higher costs or non-renewal.
In other states, financial information cannot be used as the sole reason to cancel or non-renew someone’s existing policy, or as the only factor when deciding whether to issue a policy. Often, insurers are required to explain how a policyholder’s fiscal info has been used.
Over time, as motorists’ financial situations improve, they usually have the ability to request a re-rating from their insurer once a year if their credit information was used in the rating process. In Oregon, consumers can ask for a re-rating without the risk of having premiums increased if their score has actually gotten worse.
What to do if you’ve filed for bankruptcy
After filing for bankruptcy, it may be difficult to find inexpensive coverage. One of a motorist’s best options involves going online to compare auto insurance quotes from as many sources as possible. While many insurers will use credit scoring when setting rates, some don’t. And those that do use credit scoring will still weigh the risk differently. Gathering sample rates from a wide range of sources may help bankrupt drivers find affordable auto protection.
If a blemished financial record is making it difficult to find adequately priced vehicle coverage, motorists should remember to remain patient. Although bankruptcy can stay on a person’s credit report for 10 years, there are many other qualities that are used to set insurance rates. Developing a practical budget, speaking with a financial counselor, and working hard to improve one’s financial situation can help motorists improve their financial standing over time.
In the meantime, avoid automobile accidents and moving violations, and keep a good driving record to stop insurance costs from skyrocketing. Periodically taking the time to shop around for cheaper options can also help motorists avoid higher coverage costs that are the result of having filed for bankruptcy.
Written by Staff Writer at AutoInsurance.com which provides free, fast, unbiased auto insurance quote comparisons to consumers and helps people save the hassle of getting quotes individually without requiring any personal information or lengthy procedures to find cheap car insurance rates.