Why Your Credit Score Is Important to Your Life – And Your Insurance Premiums

Maintaining a good credit score can help you in a surprising number of ways. A good credit history can result in landing that dream job, lower interest premiums on car loans and mortgages and better rates on your entire package of insurance coverage.

The Insurance information Institute (III) highlights that a solid rating in hot markets like Boston, New York City and Seattle can give renters an easier time finding an apartment and homebuyers an edge of applying for a mortgage over other potential buyers.

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Insurance companies are more likely to give discounts to homeowners or renters who have good credit rather than those who do not. While insurance only represents about five to seven percent of a typical housing payment, qualifying for these discounts can save you money.

Keep in mind that insurance scores and credit scores are different.

Credit scores predict credit delinquency while insurance scores predict insurance losses. Both are calculated from information in a credit record such as – outstanding debt, bankruptcies, the length of credit history, collections, new applications for credit, the number of credit accounts in use and timeliness of debt repayment.

Insurers or scoring agencies then calculate the insurance or credit score by assigning differing weights to the favorable or unfavorable information in the credit report.

Information such as income, ethnicity, age, gender, disability, religion, address, marital status and nationality are not considered when calculating an insurance score.

Credit and insurance scores measure how well individuals manage their money – not how much money they make. An actuarial study shows how a person manages his or her financial affairs and is a good predictor of likeliness to file an insurance claim.

Statistically, people with low insurance scores are more likely to file a claim than those with a higher score.

The good news is that building and maintaining a good credit history can be achieved if you follow the below tips, which were provided by the III:

  • Pay all bills on time in full each month
  • Limit yourself to only three or four credit cards
  • Keep balances low and use no more than 30 percent of your available credit
  • Resist the temptation to accept pre-approved credit card approvals in the mail
  • Check your credit report annually

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting agencies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report, at your request, once every 12 months.

If you find yourself unable to meet your financial obligations, contact your creditors immediately to see if you can negotiate a more manageable payment schedule. By contacting your creditors prior to a problem, you might avoid a “Bad Debit” report to the credit bureau.

Securing a good, solid credit score is another way to qualify for a low life insurance premium, as companies will consider you less of a financial risk.

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