Every insurance company has its own reasoning for raising rates on customers with a bad credit rating. Their rates are no longer based on points or traffic violations alone. How well someone pays his bills will determine if he will get the best insurance rate or in some cases no insurance at all. Before shopping around for a new insurance policy, make sure your credit report is in good standing.
Payment Default
Insurance carriers and underwriters may perceive a poor FICO score or credit rating as a risk for payment default. Payment default occurs when a policy is split into several separate payments rather than a 6 month or yearlong policy. When the policy holder misses a payment, the account will establish a cancellation notice. The added paperwork can raise company costs. If a policy holder has a previous history of nonpayment of his revolving credit card accounts or mortgage loans, there is a good chance he may stop paying on his policy. This could cause the insurance company to raise its rates.
Vehicle Types
Some insurance companies do a manual inspection of each vehicle before they issue a policy. If the vehicle is older or has mechanical problems that go unfixed, this could more likely lead to an insurance claim having to be used. Having an older vehicle that is in poor mechanical or physical condition could also be a result of the policy holder not being able to get financed due to bad credit. Some insurance companies may raise vehicle insurance rates because of this.
Lack of Stability
An insurance company may see someone with bad credit as not having a stable financial history with money. This could be due to unforeseen circumstances on his part such as a job loss or divorce, or it could be from a mismanagement of finances. Lack of a steady credit history may cause a policy premium to increase.
Inability to Pay Premiums
When a policy holder has bad credit, he is not showing the insurance underwriters that he is credit worthy. He runs a high risk of insurance company jumping as soon as his policy cancels. This can cost the insurance company more money due to the work of closing the account.
Irresponsibility
Someone with bad credit can be seen as being irresponsible. If his credit report shows multiple jobs, addresses and delinquent credit card accounts--he may not be prepared to make his insurance premiums on time. Having higher insurance rates will direct many vehicle owners in the direction to clean up their credit and get the best rate possible.
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