Question: Does your credit score affect insurance rates?
Answer: If you have ever applied for a car lease, credit card, insurance, or a loan for your home or business, then you must probably know the answer. YES, it does!
You might get surprised by the fact that your credit score not only affects your financial security but it can also have an impact on your insurance rates. So whether it's homeowners, life, automobile, business, health, or any other insurance, your good credit score might help you get a discount. And, if nothing, it will surely aid in lowering the rate to something affordable.
Yes, some secured credit card companies provide a guaranteed card approval with even a bad credit score. But, of course, all insurance companies might not use credit scores to decide your insurance rate. But, still, if you want to get the best value, you need to have a good score. Here's how your credit score can affect your insurance rates:
Ways Your Credit Score Affects Your Insurance Rates
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Your credit score is your trust key for the lenders. It shows you are trustworthy and can make the payments on time. However, it is more like a report card that explains your risk level as an insured to insurance agents. Well, when it comes to the importance of insurance, the iA financial group explains why:
“Life insurance is the protection of your family. It's like financial security that can cover your mortgage, car loans, or other big numbers at the time of your death.
But all in all, it will cover your life when you retire or go through a challenging phase.”
So, let's read how your credit can impact getting the best possible insurance rates for you:
1. Credit Score Impacts Insurance Credit Score
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Your insurance credit score is based on your credit score rating, says Investopedia. So, just like your credit score decides your odds of living a financially secure life, your insurance credit score determines your probability of getting the desired insurance rates. So, when you apply for an insurance policy, the company extends the coverage to testify your profile:
- The potential risk factor of your profile
- The stable history of the applicant
- Detailed analysis of credit report and credit score
● Profile's Risk Factor
For instance, your automobile insurance agency may check your accident history, ticket files, moving history, and similar things. But, at the same time, they may also monitor your credit score to decide how well you manage your payments and bills.
● History Of Applicant
For instance, your health insurance agency may run a thorough check of your medical history. It will help them analyze how often you need the insurance to cover your medical bills.
Likewise, if your credit score is bad, there's a higher chance your health policy premium rate might be higher than others with a better credit score.
Bonus: Click to read a detailed analysis by Experian of how your home insurance agency runs your credit score for pricing.
● Credit Report
Here's how your insurance agency evaluates your probability:
“Low credit score equals high-risk factor!”
When you apply for a particular insurance policy, the said agency will issue an insurance credit score based on your late payments, on-time payments, available credit balance, etc. Of course, it entirely depends on which state or country you're residing in.
For instance, in some states of Canada, the law prohibits the agencies from checking the reports to issue an insurance credit report. Similarly, California and Hawaii are other areas that ban insurance scores for better pricing rates.
2. You Might Not Get The Insurance You Want
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No, your bad credit score won't minimize your chances of getting an insurance policy. But, it will lower your probability of getting the one you want. For example, say you wish to register with home insurance at a low premium rate. However, your credit score is low. So, it's more likely that:
- The agency will reject your application
- They might offer you the same insurance policy but at a higher rate
Don't be frustrated if a similar thing happens to you. In fact, the FSCO govt explains how you can lower your premium rates with a few simple changes.
In another case, if you apply for health insurance with a good credit score but bad smoking or drinking habits, you may still get a higher premium rate. Why? Because there's a higher chance of you claiming the insurance in such a scenario. This statement explains that you need to maintain your credit report and personal history to get the desired insurance rate.
Similarly, if you experienced an unexpected situation in the past that left you with medical debt, it is not necessary to show up in your credit report. According to Equifax, your medical debt might also impact your credit score and premium rates. Here's what you can do for better insurance rates:
- If your Equifax credit score is terrible, you might want to work on it a little before applying for an insurance policy
- If your Equifax credit report is filled with bad credit history, try to make it better first
- Look for insurance agencies that offer reasonable rates even with your bad credit score
Different agencies have different criteria to approve insurance applications. All you have to do is look for the one that suits your conditions the best.
3. Poor Credit Score = Pricey Homeowner Insurance Rates
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If your credit falls in the poor to bad credit score range, the chances of denied homeowner insurance coverage are likely high. But, the calculation criterion is a bit different.
The insurance company checks the insurance credit score and not the actual credit score. And, the final premium may vary tremendously as per your credit score. For instance, you may get different home insurance annual premiums based on your Equifax credit score range. Here's a comparison table:
| Credit Score Range | Premiums |
| Bad | $2,770 |
| Standard | $1,333 |
| Good | $1,212 |
| Perfect | 1,025 |
Of course, these rates differ according to the policy. Still, you can generally see even the bad and average credit premium rate has a considerable gap.
Note: These rates are not compulsory. You can find cheap home insurance agencies that can offer you improved premiums.
4. Auto Insurance Companies May Check Your Score First
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To answer simply, yes, your credit score will affect your car insurance rate. To think and compare the driving history of an A-plus driver and an average driver, it is clear they both will have a different premium rate. The driving history of both drivers will differ in terms of accidents, type of vehicle, or general driving experience. You get the insurance, so you are safe from any unexpected future accident.
However, whether or not the auto insurance company will check your credit score for pricing depends on the state. But, still, you can't deny the impact. For instance, your credit score is 729, and you applied for car insurance. There's a higher chance you'll be offered an affordable annual premium rate.
The best trick is to look for an insurance provider that offers the best rates. Or, you can try some tried and tested ways to lower car insurance. Here are some things you can do to make your insurance provide trust you:
- Get a suitable vehicle that offers good protection in case of an unexpected accident
- Enroll in defensive driving courses and make sure to clear them with suitable points (coneys the ‘good driver' message to the insurance company)
- Compare three or more policies and check all their requirements and benefits
- You can look for a company that provides multi-insurances (get a duo of home and car insurance at a discounted price)
Bundling up the policies will only benefit you if you invest your time in finding the right service provider. Otherwise, it may cost you more in the long run.
5. Low Credit Score Equals High Premium Rate
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There, we said it; analyzing data is probably the favorite of an insurance company. And, the more complicated it is, the more the chances of all your possible benefits going down the hole. So it's somewhat fair to some extent to increase the price for what the insurance company has to offer. Comprehensive research by Forbes comprises that:
- Individuals with low credit scores were offered high premiums
- The ones with poor scores were African-Americans or Hispanians with low-income
- Low-income people failed to maintain a good score and hence were paying more on their automobile to life insurances
- Insurance companies study credit reports to calculate the risk factors and chances of individuals claiming the insurance
Another study revealed that almost 86% of consumers notice a decrease in the insurance premium rates depending on their good insurance credit score. So all these research studies support the theory that a good credit score can lower your premium rate.
Frequently Asked Questions
Before ending the guide, read some answers to frequently asked questions:
- Does credit score affect the chances of getting insurance?
Yes, it does. According to statistics, people with low credit scores often file claims more than people with high scores. So, in the eyes of an insurance agency, people with a good score will less likely miss a payment or have a mishap. And, when they compare both these situations, they offer less premium to the good scorers and high to the bad scorers.
- Can my car insurance rate be increased or decreased based on my credit score?
So, an insurance-based credit score is evaluated chiefly to decide the insurance rates. And, yes, that includes your automobile insurance too. According to research studies, these insurance scores decide the percentage of loss and risk factors for the company. A rough calculation is that almost 92% of companies worldwide check the credit score to get a premium rate.
- Does a low credit score impact the insurance rate?
The general rule is: lower the score, the higher the insurance rate. Low scorers are likely to file a claim, says Allstate. In comparison, the good scorers will cost the insurance company less as they already have an excellent maintenance history. But, it might not be accurate in every case and for every insurance company.
- What range is considered a good insurance credit score?
Similar to the credit score range, insurance credit scores also have a poor and high value. For example, 200 is a low credit case insurance score, and 997 is considered high. While the scores above 700 are average and below 200 are poor.
- Can I improve my credit-based insurance score for good premium rates?
Yes, you surely can. In fact, improving the insurance score is directly proportional to rebuilding and maintaining your credit score. If you manage to maintain a good credit history, below 75% available credit balance, and a perfect credit score – your insurance score will automatically increase.
- Do automobile insurance run credit?
Here's the deal: the auto insurance agency will check your credit score and credit report. On this basis, they will decide the premium rate. But, no, they don't initiate a hard inquiry that will show on your report to the lenders. Instead, this is called a soft inquiry, and it won't hurt your credit score.
Bottom Line:
That's it from our side, fellows!
If you've made it this far, we hope, by now, you must know everything about how your credit score can impact your insurance rates. For the last touch-ups; Always remember to check your credit history before applying for any insurance policy and see whether your report meets the agency's requirements.
Yes, your credit score will affect your insurance rate, but you don't need to go into panic mode for that. Instead, strive to improve your score, look for cheap insurance agencies, compare the insurance rates, and converse with them to offer you the best premiums.
