Did You Know Your Credit History Can Affect Your Insurance Rates!

February 8, 2008

Last week, I got a surprise bill in the mail. Based on my credit score, my auto insurance increased by 40%! Ouch!!! What is going on? I pay all of my bills on time, and I usually pay extra on my credit cards.

Recently, my credit rating plummeted. What did I do wrong? First, I decided to consolidate my credit card bills. Since I believe I am responsible for every penny of the debt, I did not go to some sort of agency to short-change the card companies. Instead I transferred the balance from one card to another. Big mistake!!

Why? I did not know that I needed to contact the credit card company to close the old account. Plus, closing the account is only half the process. I needed to have the credit card company send a letter to the three credit reporting agencies and let them know my account was closed in good standing. Not only do I need to do that for credit cards that are paid in full, I need to consider my old student loans.

The loan company that carried my subsidized and unsubsidized student loans still shows on my credit report as active. Okay, I am so confused!! The account balances were transferred and consolidated to a bank upon my graduation-3 years ago! Why are the accounts still open, as if I am going to ask for more college money? I need to have those accounts closed and ask the company to send a letter to the reporting agencies saying they were closed in good standing in 2005.

I had no idea my credit score could have such an impact on my insurance rates. Now I don’t know if or when my auto insurance will ever go back down. However, I have learned a very valuable, all be it expensive, lesson. Close accounts that you do not plan on using in the future; but, do not assume everything is great. Request creditors send a letter to let the reporting agencies to let them know you are in good standing with the company.

Otherwise, you may watch your insurance raise by a ghastly amount! It seems many insurance agencies are starting to include credit reports in figuring the premium. Check yours out! Do not be like me and learn the hard way.

Has your credit score had any impact on your insurance rates?



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10 Responses to Did You Know Your Credit History Can Affect Your Insurance Rates!

  • Jennifer Nalleweg

    You may want to check out Scott Bilker’s blog at http://www.debtsmart.com, as he talks a lot about what you should do with credit cards that you aren’t using and the best ways to keep your credit score high.

    Good luck!

  • Tina

    More about my saga with the credit score and insurance rates is coming. Personally, I am shocked and confused by the whole deal.

  • Frugal pursuit

    I did know my credit score affected my car insurance rate. The billing statement indicates what my credit score tier is on the front and then when I look at the back of the page for the key, it explains what it means. Since I have a good score, I really did not think much of it.

  • F2O

    Actually, closing the accounts could be a bad idea. While no one knows for sure exactly how FICO calcs the score, they do offer general information and tips. One of those tips is to monitor your blances to your total available credit. If your balances are over a certian percentage (30 – 50%) your score could go down. So by closing accounts and keeping the same overall balance you will most likely lower your score. Lenth of history is also a big factor, so if you are closing older accounts it could be a double whammy.
    In regards to your insurance, this is becoming very common. In fact, I lowered my homeowners insurance by having them underwrite a new policy. I was grandfathered in where the credit score was not used. But since I have an extemely high score (820 as of last week) I reduced my bill by about 25% by cancelling and reapplying with the same company!

  • Becky@FamilyandFinances

    I used to work in the auto insurance industry, so I know that insurance companies have been using credit scores for years. Not all of them do, though, so this might be a good time to get quotes from other companies. I’d say only about half of the companies use a credit score to determine your rates. There should be plenty of other options out there for you 🙂

  • Tim

    I also see insurers stepping up their credit worthiness thresholds like banks are doing (can you say Bank of America), too, especially if the insurer is caught up in the subprime through insurance backed investments. It’s definitely worth shopping around now. Also, did you have a change in any insurance claims recently?

  • Tim

    I hope you didn’t close the old card, because that will lower your credit score even more. Your credit score includes age of credit as well as overall credit usage. if you cancel the old car, you are losing the age of that credit history, and your credit history will become younger. second, if you cancel the card, you will increase your overall credit usage. By opening up the second credit card, you have actually decreased credit usage if you were able to transfer the amount from last credit card to new credit card. For example, old card $5k limit, new card $5k limit total limit $10k. amount owed on old card transferred to new card $5k. By keeping your old card open you have 50% usage rather than 100% usage.

    something else seems to have happened for the credit score to decrease. I can’t see that opening the new credit card, which will decrease your credit score in the short term (i.e. a year) would equate to a 40% increase in insurance. aside from this, i’d call the insurance company to see about changing the increase for no apparent reason (if the student loans were still active accounts during your last premium payment, that shouldn’t have anything to do with why your premium increased this time around), or else shop for new insurance.

  • No Debt Plan

    Ouch… a tough lesson to learn. Who are you insured with? I would check my rates with competitors once I got the credit stuff worked out.

    Try Geico… they seriously saved me $400+.


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