Your credit score is an important part of your financial life and might affect more things than you might expect. It turns out that your credit score can and does affect your premiums on car and homeowners insurance. Although insurance companies don’t use your credit scores directly, they use insurance scores that are based on your credit score. Insurance scores are computed to represent the probability of an individual filing an insurance claim. A lower score will create a higher premium for you. Unless you live in California, Massachusetts, or Hawaii for car insurance, and Maryland or Hawaii for homeowners insurance they most likely use an insurance score to help determine your premium.
The differences between credit scores and insurance scores are fairly minimal. Insurance scores focus more on payment history and amount of debt than types of credit and new credit accounts. Insurers look for the likelihood of future insurance loss, while lenders look for the likelihood of repayment. Homeowners, auto, and life insurance all use these scores differently and may have different ranges for what is considered a bad, good, and excellent score.
We want you to get the best bang for your buck, so we want you to understand how to qualify for the best premiums. If an insurer has taken significant action because of your credit, they must divulge that information upon request. If they have taken action they are required to let you know what information they used and from which credit bureau.
The first thing you should do is look at the credit bureau in question and review their information for accuracy. If you find a mistake, we recommend sending a dispute letter to that bureau to correct the information. The reduction of inaccuracies should bolster your credit and insurance score. If the score increases significantly, return to your insurer and ask for a reevaluation to adjust your premiums accordingly. To avoid these costly headaches we suggest that you work with a wealth manager to keep your scores high and stress low.