The Link Between Credit Scores and Insurance Rates
Your credit score is a number that indicates your creditworthiness and risk level to lenders and creditors. Most people are aware that their credit score impacts their ability to get approved for loans and credit cards, but many consumers don’t realize that their credit score can also affect their insurance premiums and if they qualify for monthly payment options.
Insurance companies often use credit-based insurance scores as one factor in setting premiums for policies. Policyholders with poor credit tend to file more claims and have higher losses overall. As a result, those with lower credit scores may pay substantially more for insurance coverage. Understanding the connection between your credit and insurance rates is important. There are steps you can take to keep your credit score healthy, which will help you obtain more affordable insurance.
Your Leibel Insurance Broker can also provide guidance on getting the best rates available, despite any credit challenges you face.
How Your Credit Scores Impacts Insurance Premiums
Insurance companies use soft credit-based insurance scores derived from your credit report data to predict the likelihood you will file a claim. Statistical studies have shown a correlation between consumer credit scores and insurance losses—individuals with lower credit scores tend to file more claims, typically at a higher cost, compared to policyholders with higher credit scores.
As a result, the lower your credit score, the higher your insurance rates will likely be and the likelihood you will not qualify for payment options. Exactly how much more you pay depends on your score, but in most cases, maintaining a higher credit score will help lower your insurance costs and assist with payment plan options.
Why Credit Scores Matter to Insurance Companies
Insurance companies are in the business of evaluating risk; credit scores give insurers a way to identify higher-risk customers. Multiple studies have validated that credit scores strongly correlate with insurance losses—policyholders with lower credit scores tend to file claims more frequently and experience higher average losses.
This relationship reflects the generally less financial stability and riskier lifestyle behaviour patterns that are common amongst individuals with lower credit ratings. The predictive power of credit scoring has been established across auto, home, renters, business, and health insurance. As credit has proven effective for gauging potential losses, most insurance regulators allow its use in rate-setting.
How Insurance Companies Use Your Credit Scores
Insurance companies incorporate soft credit scores into their underwriting and rating models in a few key ways:
- Initial Applicant Qualification: Consumers with very poor credit may not meet a company’s basic requirements to bind a policy. Each insurer has its own threshold for minimum allowed scores.
- Categorize policyholders within risk tiers: Credit scores help insurers segment policyholders. Those with lower scores may not have payment options. Customers with better credit scores do.
- Determine discounts and surcharges: Most insurers offer discounts to customers with very good credit scores, while adding surcharges for those with poor credit. The difference can be hundreds of dollars annually.
- Set renewal terms: At renewal time, changes in credit scores may prompt increases or decreases in policy premiums based on the risk associated with the new score.
- Flag for possible cancellation: Significant drops in credit score may indicate growing financial strains. Insurers monitor scores closely for material changes.
Finding Affordable Coverage with a Low Credit Score
If you have past credit problems, a bankruptcy or foreclosure, or other financial issues, your credit score may not be ideal. You can still get insurance, but likely at higher rates. There are some steps you can take to offset the rise in premiums:
- “Shop” for insurance quotes. Rates and your score can change over time. Check for better deals at least once a year or with major life events.
- Take advantage of bundled discounts. Most insurers offer discounts for things like bundling policies, paying annually, safety features on your home or car, and more.
- Improve your credit score. As your credit recovers over time, your rates should gradually decrease. Consider raising deductibles. Opting for higher deductibles lowers the insurer’s risk, which may offset a lower credit score.
- Seek out Insurance Brokers. With a qualified Insurance Broker, it is still possible to get affordable, quality insurance despite credit challenges. An experienced independent Insurance Broker has relationships with many insurers and can help you secure optimal premium rates, negotiating with providers on your behalf.
Partnering with an Insurance Broker
Understanding how your credit affects insurance premiums allows you to take steps to keep rates low. However, it can take considerable time and effort to shop for the best coverage with multiple companies. A qualified Insurance Broker works on your behalf, helping with your insurance needs regardless of credit rating.
Leverage the advantages of partnering with an Insurance Broker:
- Access to quotes from multiple top-rated insurance companies
- Ability to compare comprehensive side-by-side policy quotes
- Expert guidance on securing optimal coverage at the best price;
- Assistance resolving claim disputes and denied claims;
- Advice on improving credit to lower insurance costs over time.
Credit Score & Your Insurance: Work with a Qualified Broker
An experienced Broker understands how credit impacts insurance, with extensive industry data and insights to determine which insurers weigh your credit less heavily within their pricing policies. Brokers can also walk you through discounts and other cost-saving methods to help you offset potentially higher rates. Insurance regulations vary widely depending on your location, and navigating the intricacies on your own can be complex. A Broker serves as your expert guidance, and as an advocate to help you obtain affordable coverage tailored to your needs and circumstances.
Your credit score has a considerable impact on how much you pay on your insurance premiums. While maintaining excellent credit results in lower premiums, a lower credit rating can introduce new expenses and complexities with regard to your policy rates.
An independent Insurance Broker can provide valuable strategic insight and guidance, addressing challenges brought on by a low credit score. Partnering with a trusted local Broker puts personalized service and your best interests first. Contact Leibel Insurance, your trusted Insurance Broker. Our team will work with you to ensure your insurance needs are met at an affordable price, while navigating the insurance challenges that come with a lower credit score.
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