What does your credit score have to do with insurance rates? Plenty. Since the 1990s insurance companies have been using consumers’ credit scores to help set insurance premiums. Industry studies have indicated that using credit-based scores helps insurance companies better predict risk.
What does that mean for you? It means that if you have good credit, you’ll likely save money on your home and auto insurance.
“Just as insurance scores help insurance companies assess and price risks, so too can these scores help insurance customers—particularly if they are considered good risks,” according to the Insurance Information Institute (iii.org).
Insurance scores are different from credit scores, though they are both based on your credit report. And each insurance company makes those calculations a little differently. For an insurance score, “Emphasis is placed on those items associated with credit management patterns proven to correlate most closely with insurance risk, such as outstanding debt, length of credit history, late payments, collections and bankruptcies, and new applications for credit,” according to iii.org.
Therefore, the higher your insurance score, the lower your insurance rates.
What if your credit isn’t so good?
If your credit scores could be better, lower insurance rates are one more reason to improve them. If you want to improve your score, start by keeping a closer eye on it. Make sure there are no errors in your credit history. Make payments on time, avoid high “credit utilization” (the amount you owe divided by your credit limit), and don’t make too many applications for new credit.
Remember, credit scores aren’t the only factor used in determining insurance rates. For car insurance, driving history and type of vehicle are also crucial. For homeowners insurance, your location, the size and age of your home, as well as your level of coverage will also affect your rates significantly. However, improving your credit score could make a significant difference in your insurance premiums. According to creditkarma.com, improving from one credit tier to the next can save you an average of 17 percent per year. And Consumer Reports noted that drivers who improved their credit score from the “good” level to the best paid an average of $214 less per year for their car insurance.
If you have good credit, let Lakewood Financial help you reap the benefits with lower car and homeowners insurance rates. Call us today at 941-747-4600 for a free quote, or drop us an email. Lakewood Financial is an independent insurance agency serving Bradenton, Lakewood Ranch, Sarasota and surrounding communities. We have more than 25 years of experience in the insurance business and represent more than 80 financially stable insurance companies so that our clients have many choices for the best policies to meet their needs.