Does my credit score affect my insurance premium?

Feel like you are paying too much for your insurance premiums? Many people don’t realize their credit score could be a big reason why they are paying higher rates. The good news is if you take the necessary steps, not only can you increase your credit score, but you may lower your insurance premiums along the way. 

Knowing is Half the Battle

Before you can find a solution, you have to understand the problem, right? Well here goes.  An insurance score is a key component of the total premium that you will pay for health, business,  homeowners, auto, and life insurance policies. Insurance companies determine an individual’s score, in part, by using property claim databases like the Automated Property Loss Underwriting System (A-PLUS) and the Comprehensive Loss Underwriting Exchange (CLUE). 

  • An insurance score is a credit rating used by insurance companies to assess a potential insured’s level of risk.
  • The insurance score is a huge factor in determining the premium you will pay for insurance coverage.
  • Scores range between 200 and 997, with low scores reflecting higher risks and higher premiums.
  • What constitutes a good score varies for different types of insurance and rating companies.
  • When an insurance company runs your credit, it does not affect your score. 

It’s important to note that auto insurance companies have different standards for what they consider a good score. Some may offer lower premiums for scores in the 800 range, while others will only require scores in the 700 range to qualify for certain discounts.

credit scores and what category they are under

Data analytic companies like the Fair Isaac Corporation and ChoicePoint have different scales for how they interpret auto insurance scoring. The Fair Isaac Corporation’s scale ranges between 300 and 900. Scores above 700 are considered good, and anything above 800 is great and of little risk for the company. ChoicePoint’s scores range between 300 and 997, with good scores nearing the higher end of the scale. Consumers with ChoicePoint credit files may obtain a free report.

Ways to Raise Your Credit Score 

The best advice for rebuilding credit is to manage it responsibly over time. If you haven’t done that, then you’ll need to repair your credit history before you see your credit score improve. The following steps from myfico.com will help you with that.

Check your credit report for errors

Carefully review your credit report from all three credit reporting agencies for any incorrect information. Dispute inaccurate or missing information by contacting the credit reporting agency and your lender. Read more about disputing errors on your credit report.

Pay bills on time

Making payments on time to your lenders and creditors is one of the biggest contributing factors to your credit scores—making up 35% of a FICO Score calculation. Past problems like missed or late payments are not easily fixed.

Someone paying bill online with credit card in one hand

Reduce the amount of debt you owe.

Your credit utilization, or the balance of your debt to available credit, contributes 30% to a FICO Score’s calculation. It can be easier to clean up than payment history, but it requires financial discipline. 

Check for Other Ways to Save

Repairing your credit can take some time. While you are working on increasing your score, be sure you are taking advantage of all the discounts available to you. As well as these other budget boosting tips

At Paradiso Insurance we are here to help you understand all aspects of your insurance. If you have questions about your coverage or your rates, don’t hesitate to give us a call today at 860-684-5270. Our insurance experts will be happy to help