Reader question:
If credit scores has so much to do with car insurance scores, what’s the difference between someone who has good credit and bad credit when it actually comes to using the insurance?
Marcus
Glad you asked.
Even though the relation seems arbitrary at first, there are actual studies that exist that show the behavior of people with better credit versus those with worse credit when it comes to filing insurance claims. The relation, though, is very basic. Insurance companies don’t care as much about who, statistically, will get in more accidents as they do about who will file more claims, as it is the claim they are paying for and not the accident itself. People who have more money will file less claims simply because they don’t need to, whereas people with less money will file claims even over smaller things that those with more money could easily fix on their own. And there is a correlation between having less money and having a bad credit score.
But there’s more to it than that. In 2000, James Monaghan, a researcher for Metropolitan Property and Casualty Insurance Company, conducted a study to see if there was any real relation between good credit history and claims filed, and some relation was found with people who have a more substantiated credit history filing fewer claims. Those whose first item on their report went back at least twenty five years tend to only file about $65 in claims for every $100 of their premium, whereas those whose first item is only from a year or so back file $95 to every $100, cutting it pretty close.
Cheers,
Fashun Guadarrama.