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Edwards Graham Insurance Del Rio Texas
Edwards Graham Insurance Del Rio Texas
Credit Scoring

How Does Credit Scoring Affect My Insurance Rates?
Over the last few years, many insurance companies have started using credit information to help determine what a customer pays for an insurance policy. Over 90% of insurance companies use insurance scores as one of many factors in their computer rating models.

What is an insurance score?
An insurance score is determined by reviewing a consumer's credit history. A carefully developed and tested computer model performs this analysis, and looks at information such as payment history, whether you have filed for bankruptcy, if you have bills with a collection agent, any outstanding debts you may have, and the length of your credit history. Unlike a "credit score," which is typically used when you are seeking a loan, an insurance score is used to help insurance companies accurately assign the best price available for your policy. When calculating your insurance rate, insurers typically group consumers into categories. For example, driving record and age are the most often used categories to help calculate the cost of a customer's auto insurance policy. Insurance scores are just another method insurance companies use to determine what you pay for your policy. According to extensive industry and independent research, people with certain patterns in their credit history that result in a lower insurance score are more likely to have claims that need to be paid by their insurer. For instance, keeping your credit card balances below the maximum limit and making regular, on-time payments will result in a higher score. On the other hand, if you have a history of "maxing-out" your credit cards to their limits and submitting payments late, your score will be negatively impacted, meaning a lower score. An insurance score does not take into account income, race, gender, religion, marital status, national origin, or geographic location. It only reviews your credit history.

Why do companies use insurance scores?
Since insurance scores have been proven to be highly predictive of the potential for future losses, they help insurance companies determine the likelihood that a customer will file a claim, and thus allow carriers to set rates that are accurate and appropriate for each customer. This enables carriers to offer insurance coverage to a broader range of customers. What’s more, many of these customers benefit from the use of insurance scores in the form of lower prices. Insurance scores are used in the same way as other traditional underwriting factors. As a group, people with certain patterns in their credit history receive lower insurance scores and are more likely to experience a loss and file a claim. They are charged a higher premium to reflect that risk. This allows insurance companies to give better rates to consumers with higher insurance scores, who are less likely to file a claim. Credit history helps predict the potential for future losses, but it is not the sole factor in determining the cost of your policy. It is one of several factors used to arrive at the best rate possible. The age of a driver and prior claim history are two other important factors that are also used to determine your rate.

What information affects my insurance score?
In determining your insurance score, the following information is used:

  • Payment history
    (Do you generally pay your bills on time or are you more than 60 days late?)
  • Bankruptcy, foreclosures and collection activity
  • Length of credit history
  • Amount of outstanding debt in relation to credit limits
    (Are you "maxed-out" or are you well within your limits?)
  • Types of credit in use (e.g., mortgages, installment loans)
  • New applications for credit you have requested

What if there is an isolated problem on my credit report?
Insurance companies understand that sometimes people face difficult circumstances, such as medical collections, divorce, or job loss. As your independent agent, we may be able to help. In most cases, an isolated instance of a late payment will not have a significant impact on your insurance score if you otherwise have an established pattern of responsible credit use.

How do companies typically use my insurance score?
Companies use your insurance score together with a number of other factors (including the factors mentioned above) to determine the best pricing level available to you. Generally speaking, customers who have higher insurance scores and no prior claims or accidents, qualify for the best rates. For those customers with prior claims or accidents, a higher insurance score will help them qualify for a better rate than a similar customer who has a significantly lower insurance score. In turn, customers with no prior accidents or claims, but who have low insurance scores, may also qualify for a competitive rate.

The information in my credit history is personal and sensitive. What protection do I have against misuse?
Numerous federal and state laws and regulations are in place to protect you. Under federal law, if the information in your credit history results in an "adverse action," by a company, that company must notify you and inform you about how to obtain a free copy of your credit report. You will also be provided with a description of your right to dispute the accuracy or completeness of your credit history.

Will my agent have access to my credit report?
No. We will be informed of your overall score when the policy proposal is created, such as Excellent, Good, Fair or Poor. We will not have access to the underlying information used to calculate that score.

How can I improve my insurance score?
One of best things you can do is to make sure you pay your bills on time. That will help little by little with your credit history. You can also review how much credit you have. Are you up to your limit on a credit card? If so, that may also be considered an unfavorable factor. Consider how to reduce your debt without creating additional credit activity. Also, review your credit report regularly. Resources such as the American Insurance Association provide additional information about how to improve your credit history.

What if I need more specific information about insurance scores?
The Insurance Information Institute Web site contains a great deal of specific information on this topic under the "Credit Scoring" link. It also contains links to other helpful resources.

Are Your Insurance Limits High Enough? by Rachel Beavan

You may have seen a recent tv commercial showing a young man and his parents in a courtroom. They have just found out that they have to pay for a lawsuit settlement that exceeds their insurance limits. Can this really happen? You bet! There is another tv commercial where an attorney is telling you that if you are on a jury, you cannot base a judgment against someone on their insurance limits. This is a bit more confusing, but what he is telling you is that if you are sued for an auto accident, a jury will determine how much you owe the other party without knowing what your insurance limits are. There is a good chance they could decide that you owe more than your insurance limits. If that happens, where does the money come from? It could come from your savings, college funds or your IRA. You could be forced to sell some of your assets. Your wages could be garnished. The answer is…the extra money comes from you. In a turbulent economy, most people only think about how much their insurance will cost them. If your insurance agent is doing his job, he or she will give you options in coverage limits based on your individual situation. What do you have to lose if you are the one in that court room facing that jury? How do you know what your insurance limits are? Look on your policy. Texas requires minimum auto insurance limits of $25,000 per person for bodily injury up to $50,000 per accident, regardless of the number of people in the car. If you cause an accident, and the other party requires surgery, how far will $25,000 take you? If the operation is $50,000, your insurance company will only pay the top limit of $25,000. Are you financially prepared to pay for the rest? Wouldn’t you rather spend that $25,000 on something for your family? How do you know what insurance limits are right for you? Your agent should be talking to you about this. Here’s where to start…make a list of all of your assets. This includes your home, your cars, your checking and savings accounts. Then consider your household income. How much do you need to protect? That will give you an idea of what insurance limits are right for you. Then talk to your agent before you end up in the courtroom.