How Can Your Credit Score Affect Your Insurance Premiums?
Your credit score is one of the most influential factors when it comes to financial outcomes in your life. Most people know that their credit scores affect their ability to obtain a mortgage or loan. What’s more, most people understand that the interest rates they pay on loans is tied to their credit scores. However, there are even more aspects of your life that are influenced by your credit score.
In fact, your insurance premiums can be directly affected by your credit score, which means that if your score isn’t great, you’ll be paying more for your coverage.
Insurance scores
Many insurance companies use your credit score to generate a credit-based insurance score that is then used as a factor in determining your premiums. Credit-based insurance scores and your credit score are not the same thing. Insurance scores focus on only some factors of your credit history in order to gain an indication about how you manage risk. Factors that may be used include:
- Payment history
- Amount of debt
- Length of credit history
- Recent applications for new credit
- Types of credit you have
In some states, insurance companies are limited in whether they can use credit-based insurance scores and, if so, to what extent.
While influential, credit-based insurance scores are only one factor in a company’s process of determining your premiums. Auto insurance companies, for example, could consider factors such as your location, moving violations, age, the model, and age of your vehicle, and how much you drive.
How to improve your credit score?
The easiest way to improve your credit-based insurance score is to increase your actual credit score. A healthier credit score can lead to lower premiums and put money back into your pockets. In addition, the higher your credit score, the better terms you will receive on loans and credit cards. As such, having a good credit score is helpful not only for the present, but also for your financial future.
Some steps that you should consider taking to improve your credit score include:
- Be punctual by paying your bills on time is a key factor in maintaining or improving your credit score.
- Paying a loan back to reduce the amount of overall debt that you have is a good way of improving your score.
- Paying off a credit card feels great, but even if you don’t owe any money, you should keep the account open while maintaining a certain credit limit amount.
- Limit any new debt to what you can afford and keep the amount of applications you make for new credit to a minimum.
- Maintain financial balance and have a wide variety of credit types, such as a mortgage, auto loan, credit card and a personal loan can contribute positively to your credit score
About CMR | PolicySmart®
PolicySmart’s risk management consultants provide independent group benefit, retirement and commercial insurance advice by reviewing your current portfolio of policies to improve coverage and reduce cost. By using our proprietary database – The CMR Database® (comprising some 13,000 brokers and specialists globally), we maximize access to the insurance and retirement industry providing greater options that will translate to better coverage and lower cost.
Please email croche@policysmart.app or call 888-873-1982 or 212-447-4300 for more information. www.policysmart.app
