Most people are aware that lenders look at your credit history to decide if they will give you credit. Did you know that insurance companies in certain states also take into account your credit history? Your credit history can have an impact on your ability to buy homeowners insurance or auto insurance coverage. It also influences the premium you pay.
Consider these scenarios as an example:
You were unemployed six months ago. You fell behind on multiple credit card payments before you could find a job. Even though you have never filed a claim against the policy, your auto insurance rates are rising.
You have always paid your bills on-time and paid cash rather than applying for credit. This could be a problem. Like when you apply to a mortgage or creditcard, you don’t have a credit history. There is no credit history for monthly credit card payments.
People believe only driving records are important. However, this is not true. Most auto insurance companies view credit as a very important rating variable.
What’s your score?
Different criteria have been used by insurers to decide who to insure and what rates. If you apply for auto insurance, your insurer may consider your driving record, age, make and model of the car and any insurance claims that you have filed in the past. Insurers have been using credit information to predict who is more likely to be at risk over the past decade. According to insurers, the more credit you have, the less likely it is that you will file a claim against your homeowners or auto insurance policy. The more likely you will be to pay your premiums, the better.
You may receive a lower premium if your credit history, along with other factors, suggests that you are likely responsible driver. You may have to pay more for coverage if your credit score is poor or if you don’t have a lot of credit history. Some people may be denied coverage.
How to improve your score
You can request a copy of your credit report, free of charge, from the bureau that was used by the auto insurer who denied you insurance coverage. You can also dispute the credit bureau’s information if you believe it is inaccurate.
This may seem like too little too late if you have been denied insurance. Here are some things to do if you have poor credit and it is affecting your ability or willingness to pay premiums for auto or homeowners insurance.
Your credit score should be cleaned up immediately. You must pay your bills on time, eliminate high-interest credit cards and limit your spending.
Get credit if you don’t already have it. You are being punished for your lack of credit history. Insurance companies view you as an unknown quantity. While you don’t want excessive debt, it is important to demonstrate that you are capable of responsibly using credit. You should use your credit responsibly and make your monthly payments on time.
Get copies of your credit reports from all three major credit agencies once a year. (Some information in one report might not be available on the other. Verify that all information is correct. Discuss any errors with creditors and credit bureaus.
Compare insurance quotes. Prices for the same coverage may vary depending on which insurer you choose.
To save money, consider increasing your deductible. Higher deductibles will lower your premium costs for homeowners and auto insurance. If you have to file a claim, make sure that you can pay the deductible.
Credit reports are an industry standard. You can make your credit work for yourself by paying attention to it. If you are diligent about your credit, you might be rewarded by lower premiums.