Credit Scores and Insurance

Learn More about How a Credit History Impacts Insurance Premiums

Nov 26, 2007 Lisa Nichols

Learn more about how a credit score impacts the ability to get insurance. A poor credit score may mean higher insurance premiums or getting denied for insurance.

A credit score can significantly impact the ability to get insurance and it can also impact the cost of insurance. A credit score is a measurement of credit history in numeric form. Insurance companies use credit scores to help determine eligibility for an insurance policy, the types of coverage available and also to decide how much customers will pay for insurance premiums. Insurance companies do not need applicants' permission to run a credit report.

How Credit Scores Impact Insurance Premiums

Insurance companies have years of studies that show people with problem credit are more likely to file insurance claims. According to the logic used by many insurance companies, people who are likely to file claims should pay more for insurance, get reduced insurance coverage or be denied for insurance. What to know about a credit score when applying for insurance or trying to reduce an insurance premium:

• Based on the national average credit score, a score of 700 or higher is a very good to excellent credit score. Te ability to get insurance and to get the best prices on insurance will not be negatively impacted by a credit history in this range.
• A credit score that falls between 650 and 700 is considered to be very good credit. The national average credit score in the U.S. is 692. People in this range should meet insurance companies’ financial criterion and insurance premiums shouldn’t be impacted by the credit report and score.
• Credit scores that fall between 600 and 650 are still considered "fair," based on the national average credit score. Though no one knows exactly how each company uses a credit report and score, this credit range probably won’t impact insurance rates or the ability to obtain insurance.
• If a credit score is less than 600, there may be a problem either obtaining insurance or getting a competitive rate for insurance premiums due to credit history.

What to Do to Improve a Credit Score

There are things that can be done to improve a credit score. Get these items cleaned up and removed from a credit history and there will be a greater likelihood of getting affordable insurance premiums:

• If there are any collections agency reports on a credit report and score, find out if these can be settled with the collections agency for a lesser amount. The collections agency must state in writing that they will remove the negative item from a credit history once they receive payment.
• A credit score is negatively impacted by late payments, multiple open lines of credit or advancing past credit limits often. Work to pay more than the minimum amount due on credit cards, close credit cards that aren't needed and stay within limits when using credit cards. All of these things can help improve a credit score and the premiums paid for insurance.
• If there is a mistake on a credit report and score, immediately contact the appropriate parties to dispute the issue. Once the item has been removed from the credit report, contact the insurance company to let them know the problem has been resolved. Credit reports and credit scores are updated frequently, so insurance companies can see changes right away.

A credit score can greatly impact the ability to get insurance or the cost of insurance premiums. And if the insurance company runs a credit report upon policy renewal, they may decide to non-renew an insurance policy or raise rates if the credit score hasn’t improved.

Everyone is entitled to a free credit report every year. Visit annualcreditreport.com to order a free credit report. And learn more about saving money on insurance including how to save money on homeowner’s insurance, finding auto insurance discounts and finding medical debt help.

The copyright of the article Credit Scores and Insurance in Insurance is owned by Lisa Nichols . Permission to republish Credit Scores and Insurance in print or online must be granted by the author in writing.

Credit Scores and Insurance