How your Credit Rating Affects your Insurance Costs
Most people know that your credit rating affects your ability to get a mortgage, and the interest rate you can expect to pay. But did you know that your credit rating can also affect your insurance costs? Most people don't realize that a bad credit rating can increase insurance premium costs for auto insurance and for home insurance.
Insurance companies don't need your permission to look at your credit information, so there's no way of bypassing the possibility of your credit score affecting your insurance costs.
What Poor Credit Ratings Mean to Insurance Providers
To insurers, a poor credit rating indicates a higher level of financial risk. They see a poor credit rating as a sign that someone is reckless with money, and, therefore, individuals with a low credit ratings are more likely to make an insurance claim. If you are financially reckless, then you are more likely to be reckless in other situations.
In the case of car insurance providers, a low credit score means you are less likely to be a safe driver. For homeowner's insurance carriers, it means that you are less likely to responsibly maintain your home. All of that translates into higher premiums for vehicle and home insurance.
What Credit Information Affects My Premiums?
According to law, insurers can only use certain types of information when they calculate your premium. They can't, for example, use house or car debt, and can't use any information at all if you don't have a long enough credit history to have been given a credit score.
Unfortunately, if you have a low credit score it's definitely going to affect your insurance costs, and the only solution to this problem is to improve your credit score. That does take time, but it's worth doing.
Your credit rating affects many areas of your life, so it only makes sense to ensure you know what your credit rating is, as well as how it changes as you make financial decisions.
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