SEATTLE - Life on your own also means paying your own way. As
a college student, how you manage your money now affects your
credit, insurance and ultimately your future financial security.
According to Nellie
Mae, a leading provider of student loans, 84 percent of undergraduates
will have at least one credit card while in school. Many college
students will use credit cards to pay for clothes, food, books,
supplies and other necessities.
"Wise money management and prompt payment of bills are essential
to maintaining both good credit and a favorable insurance score,"
said Karl Newman, NW Insurance Council president. "Failing to
manage your credit carefully will result in lower insurance scores
and higher insurance premiums."
But what does your credit history have to do with auto insurance?
More than you might think. More than 90 percent of auto insurance
companies in the U.S. use Credit-based
Studies show a person's credit history is the most accurate predictor
of future insurance claims. A study released by the Texas
Department of Insurance shows a strong correlation between
credit and claims frequency.
The Texas study examined two million auto and homeowner policies.
It revealed that customers with lower credit-based insurance scores
file claims more frequently than customers with higher insurance
scores. The study also demonstrates that policyholders with the
lowest insurance scores file nearly twice as many claims as policyholders
with the highest insurance scores.
Here are some key facts about credit-based insurance scoring:
- An insurance score does not consider personal characteristics
such as age, gender, income, net worth, home address or ethnicity.
- Insurance scores do not discriminate against lower income
groups. In fact, some of the best insurance scores appear
among low- and moderate-income groups. It is evident that
a low insurance score has nothing to do with income and everything
to do with how people manage their money.
- An insurance score is a numerical rating based on factors
such as timely payment of bills, public notices, bankruptcies,
tax liens and credit inquiries. Some insurance scoring models
also include prior claim history.
- Insurance scores are only one of many rating factors used
to determine eligibility and rates. Other factors include
age, driving record, vehicle, and mileage driven.
- Insurance scores have proven to be an accurate way to predict
future claims. Separate studies conducted for insurance regulators
and insurance companies have shown a very strong statistical
correlation between low insurance scores and frequent claims.
- An insurance score will not be affected by inquiries from
- Insurance scores do not include specific information about
- The Federal Fair Credit Reporting Act of 1970 (amended 2003)
and Washington State's 1993 Fair Credit Reporting Act allow
insurance companies to use credit information when evaluating
- Using credit wisely is the best financial strategy for maintaining
a healthy credit profile.
As a college student transitioning to personal independence,
it is important to manage your finances effectively so you can
live a more prosperous and enjoyable life.
For a free brochure, Credit & Insurance, that includes
information about how consumers can manage or improve their credit
profiles, contact the NW Insurance Council at (800) 664-4942 or
send an email to firstname.lastname@example.org.
For more information about insurance, visit NW Insurance Council's
website at nwinsurance.org.
NW Insurance Council is a nonprofit, public-education organization
funded by member insurance companies serving Washington, Oregon