Short answer: yes, your credit score can have a major impact on your insurance premiums but it really depends on which type of insurance you’re talking about.
Auto and homeowner’s insurance companies use a CLUE report. This is highly specialized report on your history of claims for those two types of insurance. It stands for Comprehensive Loss Underwriting Exchange and is very similar to your credit score and report in that it aggregates and scores your history and tendency to file claims on your car insurance or homeowners insurance.
The bottom line, is that your credit score DOES impact your insurance premiums, both for your car insurance and your homeowners insurance, though your CLUE Report may have a stronger impact. There are news reports that credit scores are also considered for disability insurance as well as life and possibly even health insurance.
Having a good credit score just makes good sense
Do you know your current credit score? Many companies make these numbers available, if only for a short time, to most consumers. Ranging between 350 and 850, your score is simply the culmination of how you’ve paid your credit accounts in the past, how much credit you’re using now, how much credit is available to your for future purchases, and who you’re currently attempting to get credit with.
Companies pile this information into an algorithm and voila, companies have your score.
Where can you get your credit score for FREE?
Try either of these two:
- Credit Sesame – With their “no credit card required” policy this one is a no-brainer.
- GoFreeCredit.com – offering a free 14 day trial, you still get all three credit scores.
Why are insurance companies interested in my credit score?
It indicates your history with credit and like most other things in life, future behaviors can generally be predicted based on past behaviors under similar circumstances. Insurance companies know that if you’ve been reckless with credit, you may be wreck-prone with a vehicle. They also know that if you’re in a financial bind, you’re generally more apt to have a homeowner’s claim of some sort. That makes insurance companies nervous and the way their relieve that sense of uncertainty is with higher premiums.
What can you do to improve your score?
It isn’t an overnight process but given enough time you can improve your credit score by:
- Paying your bills on time
- Paying off most of your debt
- Not applying for credit from multiple sources within a short period of time
- Applying for a secured credit card and use it responsibly
- Not switching employers too often
- Having a stable “home” address
- Never closing an old credit account unless absolutely necessary
Many financial gurus claim that once you’re out of debt, you no longer need to worry about your credit score. This is both wrong-headed and short-sighted. Scores are used for more than just loan decisions, they’re also used to decide your insurance premiums, whether you get a job, and even whether you can rent a condo or apartment. They tell people what kind of person you are – responsible or irresponsible.
Don’t neglect your credit score, even if you’re 100% out of debt … it can still come back to haunt you.