Want to know a secret way to lower and/or also affect how much you pay for your home and car insurance premiums?
It’s really not a secret, nor is it magic. It’s something anyone can do: maintaining a good credit score.
Your credit history affects more than your credit.
You totally understand how your credit history factors into the decision when you apply for a credit card. The credit card company wants to make sure you have an history or paying your bills and paying them on time.
And when you are applying for an auto loan or home mortgage, your credit history (i.e. paying your bills on time) plays into the interest rate you are offered – which affects the total payback on your loan. The better credit history you have, the better interest rate which means less money you will have to pay the banks.
Insurance companies have a different reason for examining your credit report. They use your credit report to determine your risk of filing a claim.
Yep, that’s right. For the last 25 years, Insurance companies have used your credit reports to predict the possibility that homeowners will have a fire, suffer a break-in, have a tree fall on the roof, or be the victim of some other covered peril. They do the same for auto insurance policyholders.
Only three states — California, Hawaii and Massachusetts — ban the use of credit scores in setting insurance premiums.
What’s the correlation?
Insurance companies started using credit histories to determine premiums because studies have shown that those with higher (more desirable) credit scores file fewer claims. Insurance companies believed that using the credit-based scores would help get more accurate and fair rates for policyholders — in fact, the industry says it actually results in lower premiums for most policyholders.
However, many consumer groups criticize the practice because they believe it penalizes those that have previously run into medical emergencies and financial difficulties, and unfavorably affects low-income and minority customers.
What can you do?
There’s no quick fix for not-so-great credit score. It takes time and discipline to pay bills down and on time. But given the potential for saving on your mortgage and your insurance premiums — it’s worth the effort
One step you can take immediately is to check your credit report and correct errors that could reflect badly on your score. Take charge of your finances by building a good credit history and improving your credit score. You can save a lot — now and in the future.
The Agent Insurance Services | (330) 758-3339