Things You Need to Know About Your Credit Score and Insurance

Things You Need to Know About Your Credit Score and Insurance

Your credit score is an integral part of your economic picture. It's used during all types of big life moments — like obtaining approval to rent an apartment, taking out a loan (and specifying your interest rate), applying for credit cards, and much more. But did you know that in most US states, your credit score could significantly impact your home and auto insurance rates? So, we're breaking down the sometimes-confusing matter of how your credit score plays a part in your insurance rates.

How your credit impacts your insurance choices

Your credit rating influences what is known as your credit-based insurance score, a number used by insurance carriers to decide whether they offer insurance to you and how much you pay for it. Your insurance score is different from your credit score but is figured using some credit-related elements — like your payment history, credit history length, and the debt you owe. It's usually based on a credit report from a central credit bureau, like Experian, TransUnion, or Equifax.

Another thing to mention is that you won't have one fixed insurance score since every insurance company calculates the number slightly differently. However, regardless of how the score is estimated, one theme carries across the board for most firms — if you have a more inferior credit-based insurance score, you'll probably pay more in premiums.

Why do insurance carriers utilize your credit report?

Insurance carriers can utilize your credit-based insurance score as one of multiple factors to determine your rate and choose whether to offer you a policy. In addition, it's used to predict how likely you will file a claim (which costs the company capital).

What does a credit score have to do with your odds of filing a claim? Some enterprise research from the Federal Trade Commission indicates that individuals with lower credit scores file more claims than people with good or excellent credit scores — and thus, your credit history helps insurers anticipate the level of risk to give you a policy.

The great news is that your insurance score isn't the only element that carriers use to determine the rate they offer you — in fact, they're usually mandated to use other elements. Learn more about some of the additional items that impact your home insurance and car insurance rates.

You might be better off in certain states if you have a lower credit score.

While most US states permit carriers to use credit-based insurance scores, some states have enacted laws restricting credit information use by insurance companies. These laws were established to allow equal access to insurance, regardless of an individual's financial situation. So, in theory, if you have a lower credit score, you'd be better off residing in one of these states to access more insurance choices for a better price.

However, the states that limit the use of credit information do so to differing degrees — and it can get confusing. For instance, a few states permit insurers to use credit in certain circumstances, like determining your initial rate but don't allow insurers to use credit to raise your rate in the future (like when a policy renews). Others permit insurers to use credit history to determine rates but not to refuse a policy application or as grounds for policy cancellation.

These are things you need to know about insurance coverage and your credit score. Contact us today if you need assistance with property claims in Orlando, FL. We are here to help!

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