Bad credit worse than bad driving

By The Wall Street Journal

It seems like everyone on television these days wants you to shop around for auto insurance. Actor Dennis Haysbert says Allstate can save you money. "Flo," with the red lipstick and the bouffant hairdo, is downright perky about Progressive Group. And a Cockney gecko and a pesky stack of googly-eyed cash want you to give Geico a try.

They may all be on to something. Prices in the intensely competitive auto-insurance business are based on so many different factors, and are calculated in so many different ways, that shopping several different companies really could help you save hundreds of dollars every six months. "Even if you don't change companies, take a test drive and see what's out there," says Ken Ross, the commissioner of the Michigan Office of Financial and Insurance Regulation.

But doing so will take patience and some understanding of the many pieces that go into your quote. You'll have to find the time to fill out extensive questionnaires about your driving habits and your background or endure the sales pitches of phone operators and agents.

Whether you've had any accidents or traffic violations in the past few years will matter, as well as what car you drive, how many miles you travel each year, the coverage you want and where you drive. Your age will also weigh heavily -- and the penalties are as sharp or sharper if you are over 70 years old than they are if you are under 20.

Here are some other factors to consider before you start comparing.

Your financial behavior matters -- a lot

Nearly all insurers now look at your credit record because it has proved to be a strong indicator of how likely you are to file a claim. (There's one exception: In California, such use of credit scores isn't allowed).

In fact, Michael Miller, an industry consultant in Carlock, Ill., says credit scores in general are one of the top three factors that insurers consider in determining your rates, along with where you drive and demographic characteristics like age and gender. Your driving record, while among the top 10 factors, is further down.

The industry uses credit-based insurance scores, which aren't the same as your FICO or other credit scores banks and mortgage lenders use to determine how likely you are to repay your debts. Insurance scores are based on the same data in your credit report, but they are weighted and calculated differently. The industry contends that 60% or more of consumers pay lower premiums because their credit behavior is factored into the equation.

Video: Smaller cars, bigger insurance bills

You can track some of the information insurers use, but insurance scores are hard to penetrate. Make sure your credit reports are accurate by checking them, free of charge, using the government-run AnnualCreditReport.com. Once a year, at ChoiceTrust.com, you also can get a free copy of your C.L.U.E. auto report, which lists the insurance claims you have filed in the past seven years.

Continued: It's your score, but you can't always see it

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