How Your Credit Score Impacts Insurance Rates
Did you know that the health of your credit profile impacts your insurance rate?
Not many people do.
Insurance companies rely on customized credit scoring models to help mitigate their risk when issuing an insurance policy. According to the Insurance Information Institute:
“Insurance scores correlate with claims experience. The reason for such widespread adoption of insurance scores for underwriting and rating is that most studies have found a strong relationship between insurance scores and losses”.
Insurance scores are not the same as normal credit scores. However, they both use data from your credit profile to calculate your risk as a consumer. According to a blog post from Allstate, the following factors are accounted for in an Insurance Score:
Long-established credit history
No late payments or past-due accounts
Open accounts in good standing
Past-due payments
Accounts in collection
A high amount of debt
A short credit history
A high number of credit inquiries
As stated by the Insurance Information Institute and FICO, “95 percent of all U.S. personal lines insurers use insurance scores to help in underwriting and rating.”.
It is stated multiple times in the research we’ve done that an insurance score is only a part of the underwriting process that includes multiple other variables. However, it is important to recognize that healthy credit can not only save you money on your auto loan or mortgage, but also saves you money on your insurance rates.
How can you quickly improve your insurance score?
Step 1: Pay your accounts on time.
Step 2: Build a plan to resolve any outstanding collection or derogatory accounts on credit.
Step 3: Keep your revolving debt (credit cards) below 30% of the available credit limits.
If you’re working on building a healthy credit profile, now may be a good time to schedule a free evaluation with our team to learn more about how you can increase your credit scores while resolving your credit challenges.
Schedule a Free Evaluation here.