Your Credit Score Can Raise Home & Auto Insurance Prices

A good or bad score can affect everything from the rate you pay on a mortgage to the cost of insuring your home.

Everybody has a credit score these days and it can have a huge impact on your financial life. A good or bad score can affect everything from the rate you pay on a mortgage to the cost of insuring your home.

Achieving, and maintaining a good credit score takes work and financial discipline but the payoffs can be big when it comes time to buy a car, get a loan or apply for a credit card.

How your credit score affect insurance premiums

While banks and loan companies use your credit score to calculate your risk profile in regards to not paying your bills on time, insurers use the data a bit differently. In almost all cases, you pay your insurance premium up front so insurers don’t really have to worry about the odds of you paying for coverage.

But they do have to worry about you making a claim on your policy and your credit score can help them to see into the future, or so they think.

Insurers use the data on your credit report to help predict the likelihood that you will file a claim on your policy. Insurers love data and they believe that the data in your credit report can help them determine how likely you are to be a victim of a burglary, fire or other covered peril.

According to insurance companies, there is a direct statistical relationship between claims and financial stability. Consumers that are more financially responsible tend to have fewer losses and the losses they do have are usually less costly. These consumers should be rewarded with lower insurance costs according to insurers.

This is not a new practice, insurers have been using credit scores to determine rates since the 1990s. Despite being a fairly common practice, it is controversial, and three states, California, Hawaii and Massachusetts have outlawed the use of a credit score to determine rates.

Consumer groups claim that using credit score information to determine insurance rates penalizes people that have had financial difficulties or have been involved in an accident or other major emergencies. They also believe it has a negative affect on both low-income and minority customers.

Unfortunately, a credit score can have a major impact on insurance premiums. According to the Consumer Federation of America, a major insurance company charged policyholders who had a poor credit rating up to a 127 percent more than their customers with the best credit scores.

Tips for keeping your credit score up

A good credit score is the best way to keep the cost of your homeowners insurance premium down. It requires constant vigilance and spending discipline because once your credit rating goes down it can take years to push your score back up to acceptable levels.

Here are a few tips on how to keep your credit rating in the acceptable range:

Pay bills on time: All of your bills should be paid on time, not just your mortgage and credit card bills. Even the smallest unpaid bill can end up on your credit report so make sure all bills are paid on time.

Keep credit card balances low: Credit card balances are bad for your credit rating. In order to maintain a decent credit rating, keep credit card balances within 30 percent of your credit limit.

Keep debt reasonable: It’s not only credit card debt that can hit your credit score. Any type of loan will have an impact. Having too much debt can have a negative affect on your credit rating so only take on debt if absolutely necessary.

Monitor your credit report: Errors do occur so it is important to monitor your credit report. It is possible to get a free credit report once a year. Check freecreditreport.com to view a copy of your report. Read through it carefully, looking for errors and if you find any immediately contact the reporting agency to get the information corrected.

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