How you handle your credit can affect so many areas of your financial life, but here’s one you may not realize. Your insurance company is also watching your credit and modifies what you’re paying for insurance on your car, home, etc. based on your credit score. We all know that insurance isn’t cheap, so what do you need to know about your credit and insurance? Here are three important facts:
1. Your credit file can affect what you pay for insurance. Yes, it used to be that your record of claims on your insurance was what caused your auto insurance rates to go up or down – in addition to other factors. But now, whether you pay your credit card bill (and all your other bills) on time can also determine what kind of insurance rates you pay. The insurance companies have figured out that the better you handle your credit, the less likely you are to file claims on your insurance.
2. You have an ‘Insurance Score’ – You already know that you have a credit score, but did you know you also have an Insurance Score? The credit bureaus, along with the insurance companies have come up with a formula that helps them figure out your risk for filing insurance claims, thus your Insurance Score. They check your score regularly and can change your premiums accordingly. (Note: Currently California, Massachusetts, and Hawaii do not allow insurers to use the insurance scoring.)
3. If your credit score goes up – Your score could have been low due to high credit card balances, a new collection or a error on your credit report. Many times this could be at the time you wanted your insurance and were quoted with that score. If you know your score has gone up because you monitor it, I recommend that you contact your insurance company and ask them to re-score you. A recent study revealed that moving up just one step in the insurance scoring system could net you a savings of 14% - 20% on premiums.
So, what can you do to save money on insurance? Most importantly, practice healthy credit habits. For instance, check your credit at least once, if not twice a year and clean up any bad debts or incorrect information; pay all your bills on time; and keep your revolving balances below 10% of the total credit limit. Finally, talk to your insurance companies if you’ve had any major changes in your credit score. Let them know your situation and ask if you can be re-scored. You could be saving some real money!