To Win at Auto Insurance Game, Shoot for the Best Credit Score

ANNAPOLIS, Md.--Oct. 2, 20050, 2005--Many people wonder why their credit history affects their auto insurance rates. Believe it or not, a credit report is a good statistical predictor of your rate of insurance claims, says Sean Denny of www.AutoInsurancePlanners.com.

Therefore, if you want to qualify for the best insurance rates, take the steps outlined below to keep a clean credit history.

First thing to know is how an "insurance score" is created. Insurers pay a credit rating agency to provide a numeric score based on your credit report, which is then applied to their underwriting guidelines. The insurance score may be used for new applications, rate-setting or renewals, based on state laws.

Each insurer uses a different statistical approach to understand your credit history. A company's mathematical model could use some or all of this information to get an insurance score:

payment history
collections
bankruptcies
outstanding debt
length of credit history
number of new applications for credit
types of credit in use

The theory of insurance scores, which have been in use since the early 1990s, is that people who are financially responsible are more likely to be more responsible with their cars, and practice safe driving and good maintenance so fewer claims will result.

Here are a few steps to make sure your score is as good as possible:

1. Avoid late payments or collection actions. Delinquency in consumer credit is one of the most damaging elements to an insurance score.

2. Maintain low balances. High levels of consumer credit, such as carrying big balances on credit cards, make your financial life more precarious.

3. Keep your accounts current. Don't apply for consumer credit that you don't need, or continually look for more credit, because consumer-initiated credit inquiries may count against you in an insurance score. If an account is inactive, close it. Insurers weigh the last 12 months of activity most heavily.

By shooting for the best score, you can qualify for the best policies, and that is truly how you win at the insurance game.

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