Questions about insurance scoring and how your credit history can affect your insurance purchases are very common. We hope this explanation helps.
How can my credit score affect my insurance premium?
Your credit history can work either for you or against you regarding more than just purchasing a car, applying for a loan, getting a rent, etc. It can also have an impact on your insurance purchases as well.
What is a credit-based “insurance score?”
You see, most property insurers use what’s called an “insurance score” as one component to how they calculate your premium. This score is calculated using actuarial sciences and includes numerical ranking based on a person’s credit history along with a variety of other factors.
Insurance companies view a strong credit history as a positive sign that you are responsible and able to meet your obligations. They view this as a proven ability to manage your money which indicates maturity and stability. To insurance companies, it indicates that you are less likely to present risk opposed to a person with a poor credit history, statistically shown as being more likely to present risk.
Therefore, a good credit score could really help to provide you with a good “insurance score,” in turn helping you to secure a lower premium on your insurance coverage.
Will my insurance score always be the same?
No. Your insurance score may vary. Depending on changes in your own personal circumstances, your insurance score can most certainly change one way or another. In many cases, your insurance agency could request to re-score your insurance to see if that may help to improve your premium if you’ve previously had a poor credit score and have improved your circumstances.
How can I improve and maintain a good credit history to help with my “insurance score?”
The best way to build a good and solid credit score is to make a habit of always paying your bills on time and in full each month. A reliable bill paying history can go a long way. Also, it’s helpful to have no more than 2-3 credit cards and hold them for a long period of time making timely payments. Keep you balances low and manageable.
Also, it’s a good idea to check your credit report every year to be sure it seems accurate. By law, you are entitled to one free credit report from each of the three reporting agencies once a year. Visit www.myfico.com for more information. If you see any mistakes be sure they are rectified right away. Keep in mind that fraudulant activity you may not be aware of could also affect your credit report.
For example, a person once held a store credit card (we’ll leave the retailer nameless). He didn’t use this credit card in over a year. In the meantime, a disgruntled employee somehow got his credit information and had fun charging up a storm with delivery of purchases and billing to another address. When the cardholder tried to apply for a home repair loan he couldn’t understand why his credit score came back poorly when he faithfully paid his bills on time. After careful investigation, this unfortunate circumstance was figured out and rectified. However, it was a huge headache and took up a good deal of time. Even if you have good credit, it’s always good to give yourself a check-up each year.
For any further questions regarding insurance scoring please contact V.F. McNeil Insurance at (203) 481-2684 and speak with one of our insurance professionals.