Your Credit Score Impacts Your Insurance Premium

Most people don't realize that their credit score affects their insurance premiums. Find out more about this and learn some tips on improving your credit score.

Insurance

Your Credit Score Impacts Your Insurance Premium

Never underestimate the importance of a good credit score. Why? Because that number can help in many ways. It can help lower interest rates on car loans and mortgages, and even enables you to get better rates on your insurance, according to the Insurance Information Institute (I.I.I.).


Many insurance companies give discounts on most personal lines insurance policies for those with good credit.

Credit Scores vs Insurance Scores

Insurance scores and credit scores differ. Credit scores predict credit delinquency while insurance scores predict insurance losses. Both are calculated from information in a credit report, such as:

  • outstanding debt
  • bankruptcies
  • length of credit history
  • collections
  • new applications for credit
  • number of credit accounts in use
  • timeliness of debt repayment

Insurers or scoring agencies then calculate the insurance or credit score by assigning differing weights to the favorable or unfavorable information in the credit report. Information such as income, ethnic group, age, gender, disability, religion, address, marital status and nationality are not considered when calculating an insurance score.

Credit and insurance scores measure how well individuals manage their money—not how much money they make. And actuarial studies show that how a person manages his or her financial affairs is a good predictor of insurance claims. Statistically, people with a low insurance score are more likely to file a claim.

How to Build and Maintain a Good Credit History

If you’re not sure where to begin to improve your credit history, MyFico offers these tips:

Pay bills on time. The best way to build a solid credit score is to make a habit of always paying your bills on time in full each month. Your goal should be to build a long history of reliable bill paying behavior.
Limit the number of credit cards. Have no more than three or four credit cards and hold on to them for a long period of time.

Keep balances low and use no more than 30 percent your available credit. This, of course, means resisting the temptation to accept pre-approved card offers in the mail or retail credit cards even though there may be a discount available for opening a new account.

Check your credit report annually. Look for errors and correct them as soon as possible. By law, you are entitled to one free credit report from each of the three reporting agencies once a year. Go to MyFICO.com for more information.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies—Equifax, Experian, and TransUnion—to provide you with a free copy of your credit report, at your request, once every 12 months. For more information, go to the Federal Trade Commission’s Web site on credit.

Free annual credit reports can be ordered from AnnualCreditReport.com. For information about your credit score, go to MyFICO.com.


The information in the NCMIC Learning Center is offered solely for general information and educational purposes. It is not offered as, nor does it represent, legal or professional advice. Neither does this information constitute a guideline, practice parameter or standard of care. You should not act or rely upon this information without seeking the advice of an attorney familiar with the specific legal requirements of the state(s) in which you practice. If there is a discrepancy between the site and an insurance policy you have with NCMIC, the policy will prevail.