By: Mikelle Rogers - Telcoe Federal Credit Union
Your credit score, often referred to as a financial report card, influences more than just your ability to secure loans or credit cards. Surprisingly, it plays a pivotal role in determining the cost of your insurance premiums. Understanding this connection can empower you to make informed decisions and potentially save money on your insurance bills. In this article, we will explore the intricate relationship between your credit score and insurance rates.
Why Do Insurance Companies Consider Your Credit Score?
Insurance companies use your credit score as a tool to assess the level of risk associated with insuring you. They've identified a connection between your financial behavior and your likelihood of filing insurance claims. As a result, they utilize our credit score to estimate the risk they are undertaking and determine premiums accordingly.
Here's Why Your Credit Score Matters to Insurance Companies:
1. Risk Prediction: A good credit score typically indicates you're good at handling money. Insurance providers believe individuals with good credit are less likely to do risky things that lead to insurance claims.
2. Patterns in Data:
With extensive research, they see that individuals with lower credit scores tend to make more claims. So, they use this data to determine how much it might cost to insure someone based on their credit.
How Credit Scores Affect Insurance Costs
Your credit score can make your insurance costs fluctuate for different types of insurance:
1. Car Insurance: In many regions, car insurance companies use your credit score to set your rates. If your credit score is not great, you might pay more for the same car insurance that someone with more desirable credit gets for less.
2. Home Insurance: Your credit score also plays a role in determining the cost of your home insurance. If your credit is less than favorable, you might end up paying more for your home insurance.
3. Renter's Insurance: Even if you're renting and not buying a home, your credit score still matters. Landlords often ask tenants to have renter's insurance, and having poor credit might mean higher premiums.
4. Life Insurance: While life insurance mainly looks at health and lifestyle, some companies consider credit scores when setting rates.
How to Improve Your Credit Score and Lower Insurance Costs
If your credit score is not great and you want to find ways to decrease your insurance costs, here are some simple ways to improve your credit score:
1. Pay Bills on Time: Make sure to pay all your bills when they are due. This is a substantial contribution to improving your credit score.
2. Reduce Credit Card Debt: Aim to pay down your credit card balances, as high balances can negatively impact your credit score. More credit is not a strategy to raise your credit score. In fact, keeping credit cards to 3 or less and keeping your balances at zero on those cards at all times is helpful in reaching a score over 700 (A paper).
3. Limit New Accounts: Be cautious of opening numerous new credit accounts in a short period, as this can harm your credit score.
4. Check Your Credit Report: Monitor your credit report regularly to identify and fix any errors. Ensuring you have accurate credit history can positively impact your credit score. Visit www.annualcreditreport.com to view a free copy of all three credit bureaus once a year. (Experian, Equifax, and Trans Union). There is no need to pay for your credit report or score as the score you are purchasing will not be identical to what a lender sees. Instead, the score sold is a sales tool to help encourage borrowing from credit card companies, etc.
Your credit score is more than a number; it can affect how much you pay for insurance. Knowing this connection can help you make wise choices and possibly save money. Keep an eye on your credit, be responsible with money, and you might see lower insurance costs. You may also want to shop for insurance carriers. Visit with TruStage for a free insurance quote today.
Feel free to share this information with others, and don't forget to check out our Telcoe Newsletter. If you need help establishing credit or raising your credit score you can also consider the Telcoe Credit Builder Loan.