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Your Credit Score: Can it lower your premium?

A smart way to reduce your rates

By Timberlee Tamraz Grove
1/25/2010


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Will improving your credit score lower the premium for your motorcycle insurance?
It just might. Always trying to win your business with lower rates, insurance companies have found a better formula, using elements of your credit score, to predict how responsible a rider you are, and the likelihood that your riding will result in a costly claim.

Imagine a perfect world, one where your insurance company could actually see into the future and know for certain that you were not going to have an accident during the upcoming policy year. Your premium could be set very low to cover overhead and handling costs only. On the other hand, if they knew for certain that you would have an accident in the coming year, the premium could be set high to cover the entire costs of the claim that was going to occur. Claim-free riders would never have to contribute to the claims caused by other riders.

Obviously this perfect world scenario is not possible. But some insurance companies have been using a better formula to help them predict the risks of having to pay out claims, which translate into lower rates for responsible individuals. It's called "insurance scoring."

This better formula is based on parts of your credit report. Financial responsibility has proven to be an effective predictor of an individual's responsibility in operating a motor vehicle -- and the likelihood of causing a costly accident. Combined with the other criteria used by insurance companies in computing your premium, your insurance score usually makes use of the following five categories (visit InsuranceScore.com/improvescore.aspx to learn what is included within each category):

  • Payment history
  • Amounts owed
  • Length of credit history
  • New credit recently opened
  • Types of credit used

    While the rules vary from state to state, the following items are among those not used to calculate an insurance score: race, age, address, gender, marital status, national origin, religion, employer, salary or wages, whether you're seeing a credit counselor, and any other "non-responsibility type" information not proven useful in predicting insurance risk. In addition, Markel is one company that does not cancel or refuse to renew based on the credit-based insurance score.

    Why insurance scoring is good for you
    What does insurance scoring mean to you? There are several immediate benefits:

  • Insurance scoring means you're not given a rate based solely on the typical criteria of age, accident record, traffic violations, claims record, etc.
  • Insurance scoring provides an additional way for insurance companies to measure your responsibility.

    You can improve your score and lower your rates

    It only stands to reason that if you can improve your credit score, you might also be able to improve your insurance score…and lower your premium. According to InsuranceScore.com/improvescore.aspx, there are five tips that can help you work towards a lower premium:
    1. Pay your bills on time, and if you're behind, get caught up.
    2. Keep balances low on credit cards and never move debt from one card to another. Also, don't open new credit cards that you don't need (this includes store-specific or gas station cards).
    3. If you're young and are just establishing your credit, don't open a lot of accounts too quickly.
    4. If you are looking for new credit, do your rate shopping first and then make a single application, rather than making more than one. Multiple credit inquiries to the credit bureaus can be a negative. It's important to note, however, that when an insurance company accesses your credit report to develop an insurance score, it's considered a "soft hit" on your credit and does not affect your credit score. This is also true of "promotional" inquiries, for example, a credit card company approaches you to sign up and tells you that you're preapproved.
    5. Having credit cards and installment loans can improve your score if you're always on time with your payments. Don't just open accounts to try for a better mix: it probably won't help.

    Bottom line: insurance scoring helps make sure you're not paying more than you should for your motorcycle insurance. Since the majority of people have good credit, the addition of insurance scoring means most people will pay less for insurance.

    If you have any additional questions, leave a comment below and we'll get you an answer, or call us at 800.236.2453. And be sure to visit our Web site MarkelInsuresFun.com for a lot more helpful information.

    About the Author:


    Timberlee Tamraz Grove is President of Markel American Insurance Company, which specializes in insuring motorcycles, boats and ATVs. The company is staffed with people who share your passion and know the sport of motorcycling.






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    Motorcycle Insurance: 5 Commonly Asked Questions


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    Reader Comments


    Just last week I changed insurance companies, went from paying $405 to $235 per year.
    One factor that was important was letting them know I had taken the Motorcycle Safety Riders Course. They said that would be an important factor in determining my payment. And I am very happy with the new payment, which also includes much lower deductibles, free towing, and $3500 in accessory parts insurance.

    Sue Yelle
    Fullerton, CA
    Tuesday, January 26, 2010
    Good info and good tips! Thanks.

    Lynn
    Woodridge, IL
    Tuesday, January 26, 2010


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