Believe it or not, your credit score may either be helping or hurting your insurance rates. While banks, lenders, and even employers look into your credit score to determine your general financial reliability, your various insurance providers may very well be examining the same private information. From auto insurance to home owner’s coverage, an array of policy prices can be influenced by your personal score.
Insurance Premiums and Credit Scores
While each state has its own insurance regulations and restrictions, nearly all states allow insurance providers to evaluate your credit score in order to individually formulate your costs for coverage. In fact, a recent United States Supreme Court decision has even extended these powers, as insurance providers are now no longer required to inform clients whether or not their credit score raised the costs for the insurance policy. Currently, various reviews of insurance practices reveal that an estimated 90 percent of all auto and home insurance providers factor in a client’s credit score to determine the costs of premiums.
The Role of Credit and the Cost for Coverage
While one’s credit score may seem to be somewhat disconnected from the need for insurance, one’s credit score ultimately informs providers about each client’s history of general financial well being. Factors that influence a credit score include:
- History of opened accounts
- Payment history (on time payments, occurrences of late payments, etc)
- Ability to pay (at the least) minimum monthly balances on all due accounts
- Income to debt ratio (essentially, is a client spending more money than he / she earns?)
- Additional factors / economic habits
Essentially, by evaluating one’s credit score, an insurance provider can find out which clients are known to pay bills on time and which clients have histories of serious un-paid debts. As a result, insurance providers can essentially “reward” those with a more positive financial record with greater savings. Since individuals with a lower credit score may be more likely to repeat previous financial errors, insurance providers are accepting a greater risk by opting to offer coverage for clients with less consistent credit histories. As such, the lower the score, the higher the premium.
