Does my credit score affect my insurance premiums?
The quick answer is yes. Credit plays a huge role in how much you pay for insurance policies, especially both your auto and home insurance.
Now if you are asking yourself, why, don’t worry you are not alone.
We have been having this discussion for the past 15 years with insurance consumers when we talk about why rates are calculated the way they are.
Insurance Credit Rating
Most insurance companies on most insurance products use some form of insurance scoring that is based on credit.
This is not a hard or soft credit pull and there is no trace of it on your actual credit report.
The insurance scoring based on credit allows insurance companies to get a gauge of where your actual credit score is so they can calculate your specific rates.
Why does credit affect my insurance rates?
Roughly 15-20 years ago, Insurance Companies found out, that the way they can be more competitive is to develop a new rating platform that uses hundreds of factors to determine insurance rates.
This allows them to pinpoint the specific target market they are looking to insure and develop rates and tiering that fits that demographic.
Actuaries have developed and studied that show that consumers with a higher credit score are more profitable clients.
The better your credit or your insurance score based on credit is, the cheaper your auto and home insurance rates are going to be.
Data shows that the higher your credit is the more likely you are to
Pay your insurance premiums on time
Not put in small or unnecessary insurance claims
Get into fewer accidents
Take better care and maintenance of your home
Again, this isn’t an opinion the insurance companies have, it is the data that shows it.
When you pay your premiums on time, it is less paperwork, or back end work that the insurance companies need to focus on. This saves them time and money.
The fewer claims that are filed and paid on, again the more money an insurance company makes.
Insurance is a for-profit business
You may ask yourself, why do I care if the insurance company makes money. I should be able to put in claims, that is why I pay my premiums.
Well, they are a FOR PROFIT business. If they are losing money, insurance rates will continue to go up.
If they are making money, this is where you see rates stay flat or get more competitive.
Insurance protection on your auto and home insurance specifically is meant to be used on larger claims. The few hundred dollar dent or water spot on your ceiling should not be filed unless necessary.
This is why it is important to know and understand your deductibles and why insurance companies favor those that carry a higher one.
Our recommendation for deductibles start at:
$1,000 on your homeowner’s insurance
$500 on your collision
Don’t worry as much on your comprehensive deductible as the premium savings is not large and most of the time is barely noticeable.
One of the number one ways to improve your insurance premiums is to first improve your credit score.
By improving your credit and having your insurance agent run new insurance premiums with either the same or other insurance carriers, will give the ability to cut premiums down drastically.
Discussing this with your independent insurance agent is crucial. The other important thing to verify is who is listed first on your insurance policies, You or your spouse?
A simple change of whose name is primary on the insurance policy can improve your insurance premiums drastically, especially if you know beforehand who has a better credit score.
Reach out to your insurance agent to have this conversation, if you don’t have a relationship with an agent or want a review of your insurance then click the button below to schedule a review with one of our trusted insurance advisors.