Does my credit score affect the cost of my home and auto insurance?

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What doesn’t your credit score affect these days, right?

Of course your credit score affects your insurance rates! We all know that it is important to keep your credit score up and pay attention to it by checking it regularly, but let’s talk why your credit score absolutely affects how much you will pay for your home and auto insurance.

Insurance companies have been using credit scores to determine insurance rates since the 1990’s.

It has been studied and reported by the Federal Trade Commission that credit scores accurately predict the likelihood an individual may file a claim and the cost of those claims. This is why insurance companies use credit as a factor in determining an individual’s premium rates.

Basically what insurance companies find is that, due to things like lower frequency of non-payment and a tendancy to take better care for ones possessions, the higher the credit score, the lower the lower the risk. And therefore, if you are a lower risk, you pay less for your insurance. Fair or not, this is the common practice in the Insurance industry.

Most companies look at these five aspects of your credit to determine your score:

  • Payment History (40%) — how well you have made payments on your outstanding debt in the past.
  • Outstanding Debt (30%) — how much debt you currently have.
  • Credit History Length (15%) — how long you have had a line of credit.
  • Pursuit of New Credit (10%) — if you have applied for new lines of credit recently.
  • Credit Mix (5%) — the types of credit you have (credit card, mortgage, auto loans, etc.)

All insurance companies use their own equation to determine your insurance score

Each company weighs the importance of this score differently. This is where an independent agent can help you search for the best rates. Your agent should know which carriers put more weight on credit scores and can place you with a company accordingly.

This information may also help you understand why an insurance agent will ask for your social security number when preparing a home or auto quote for you. The social security number is needed to access your credit information.  If no credit is obtained, a “no hit” is reported , which can lead to higher rates (even higher than a less than perfect credit score). Your independent insurance agent will take all precautions necessary to protect your personal information.  The use of your credit information does not negatively impact your credit in the same way applying for a loan or credit often does.

The good news

Yes, there is good news… that is unless you have a teenage boy – all bad news with teenage boys! Your insurance credit score is only one factor in determining your rates for home and auto insurance. There are many other factors that insurance companies consider in determining rates. There are factors listed below. Some of these factors may make you say, “well duh!”, but others you may not be aware of. This table will help explain why you are paying what you are paying.

AUTO INSURANCE PAY MORE PAY LESS
Driving Record Violations Clean
Gender Male Female (that’s right guys)
Age Under 25 Over 25
Marital Status Single Married
Where you live City Rural/Suburban
Type of Vehicle 2018 Mercedes 2002 Ford Fusion
Coverages Selected Full Coverage Liability Only
Claims History Claims No Claims
Length of time with insurance company Less than 3 years More than 3 years

 

HOMEOWNERS INSURANCE PAY MORE PAY LESS
Replacement Cost of Home $500,000 $150,000
Construction Materials Frame Solid Brick
Age of Home < 1920 >2010
Marital Status Single Married
Fire Protection Hydrants ˃1000 Ft Hydrants ˂ 1000 Ft
Coverages Selected Special Basic
Claims History Claims No Claims
Length of time with insurance company Less than 3 years More than 3 years

Source: generalizations, for illustration purposes only

To better understand how your credit rating affects the cost of your insurance please contact Stolly Insurance and we will explain other factors determining your cost and give you insight into how to make positive changes that will decrease your rates in the future.

http://www.naic.org/documents/consumer_alert_credit_based_insurance_scores.htm