What Effect Does My Credit History Have on My Insurance?

Posted on May 16, 2016


Insurance companies use many different pieces of information about you in order to determine your insurance rates. One of the more surprising “ingredients” in this mixture of information is your credit score.

Your credit score drives your creditworthiness, or your likelihood to pay back debt, whether that is credit card debt or a loan. Insurance companies use this financial history, along with other factors, in order to properly classify your risk potential.

Keep in mind that an insurance score is different than a financial score. An insurance score provides the likelihood that an insured will be involved in a future insurance claim. On the other hand, a finance score represents an individual’s likelihood to pay off debt, either in the form of a installment loan (auto loan, mortgage) or revolving debt (credit card) on time.

These are just a few of the effects a poor credit score can have on your insurance rates.

Higher Insurance Premiums

According to Consumer Reports, insurance companies believe people who have lower credit scores are at greater risks of filing claims. To justify the greater risk to the insurance company, they charge higher premiums. The increases can be painful and are perfectly legal in all but three U.S. states.

Credit Karma reports that California, Hawaii, and Massachusetts are the only states that currently prevent insurers from using credit data to determine insurance costs. All other states allow credit information to influence insurance rates to some degree.

Denial of Coverage

In some cases, companies can choose to deny service altogether or deny renewals based on credit scores. Some insurers will offer insurance through different companies that are willing to accept higher risks for higher rates. It almost always comes down to higher rates though for people who have lower credit scores.

Other Mitigating Factors

There is more involved in determining insurance rates than credit scores alone – though credit scores seem to have a larger impact on rate determination than one might expect. When it comes to auto insurance, for example, these other factors include things like:

  • Driving Record
  • Location
  • Age of Primary Driver
  • Claims History
  • Make, Model, and Age of Car

All of these things affect the amount of money the insurance company may be expected to pay over the life of the policy.

How Can Drivers Keep Rates as Low as Possible?

The most important thing you can do as a driver is to maintain a clean driving record; no moving violations or accidents.   An improved credit score is also very important to lowering rates.  This means making timely payments on utility bills, credit cards, and automobile payments.

Choose an independent insurance agent. Independent agents can do the shopping around for you in order to connect you with the best possible coverage for the best price. In fact, your independent agent can put together a few different insurance options for you to choose from – something that isn’t possible when working with a single carrier that may only have one option for high risk drivers.

Bundle policies. Insurance companies love customer loyalty and are often willing to offer hefty discounts to people who have multiple policies with the same carrier. Consider checking on rates for auto insurance alone and what the difference would be for bundling auto and home (or renters) insurance policies.

Finally, if you’re already dealing with high risk insurance rates, keep your eye on the future and work to clean up your credit score before the time for renewal comes along. Then you have the power to renegotiate for a lower score. This may help net you big savings after one year of painful premiums.

To learn more about your insurance options, or for a review of your existing policy, please contact Otterstedt Insurance Agency today at 201-227-1800.

Companies We Represent. View More >

  • Plymouth Rock Logo
  • Hartford Insurance Logo
  • Hanover Insurance Logo
  • Travelers Insurance Logo
  • Harleysville Insurance Logo
  • Selective Insurance Logo
  • Chubb Insurance Logo
  • ISU Logo