Did you know that the cost of the liability insurance that you purchase to protect you in the operation of your auto and in the ownership of your home is determined in significant part by your credit score? That’s right, that credit history that you thought only mattered when you borrowed money for a loan or mortgage, is a big factor used by insurance carriers in determining the premium pricing that they offer to their customers.
Insurance carriers use something called a “credit-based insurance score” to determine the price that they will charge you for coverage, as well as whether or not they will offer coverage to you at all. Insurance companies believe that the worse your credit history is, the more likely you are to cause a claim to be made against the coverage they offer you. Obviously, insurance companies look at items in addition to your credit history in pricing your coverage: If you have a history of claims being made against your coverage or a disregard for traffic laws, your liability insurance is also going to cost you more than it otherwise would.
Are Your Insurance Score and Your Credit Score the same thing?
No. A credit score is used by lenders to forecast your ability to repay money that you have borrowed from them. When you apply for a mortgage, for example, the credit score that they use is specifically designed to determine the likelihood that you will repay that loan in a timely fashion.
An insurance score, on the other hand, is used by insurance companies to predict how likely a customer is to have an insurance loss. Although the two scores are different, your credit score is one of, if not the biggest, factors in the calculation of your insurance score.
What type of transactions in my credit history can affect my Insurance Score?
Insurance companies don’t disclose the scoring models that they use in determining an Insurance Score. They consider these formulas to be proprietary, trade secrets. Nonetheless, since we know that an Insurance Score is based in large part on a credit score, we can reasonably infer the items that are utilized in determining this score: Late payments, judgments, collections and other items which negatively impact your credit score have the same negative impact on your insurance score.
A higher insurance score means higher insurance premiums, what can I do to change that?
The first step is to obtain a current and complete copy of your credit report. There are a number of ways to do this. By law, you are entitled to a free copy of your credit report once a year (like at https://www.annualcreditreport.com/index.action). Be certain that the report you obtain has information from all three of the credit bureaus (Experian, Transunion and Equifax). There’s a chance that something is being negatively reported on one of those three, but not on the other two.
You can attempt to fix damaged credit issues on your own. The process involves researching, drafting and sending verification letters to all three bureaus; following up with those bureaus and perhaps eventually, negotiating with creditors or their representatives. The process will require your time, patience, diligence and some aptitude for understanding what the credit bureaus and collection agencies are required by law to do.
Alternatively, you may want to consider enlisting the help of a reputable, professional credit restoration company. Those experts can help you obtain a copy of your credit report and further, help you to decipher and understand the information contained in that report.
A good credit restoration company will provide you with important guidance as to how to address negative items that appear on your credit report and get you started on the road to a better credit score, a better insurance score and significant savings on your auto and homeowner’s liability insurance premiums. In many instances, the savings realized from those lower premiums might more than offset the cost of professional credit restoration services.
You need to take a serious look at how your credit is impacting your life. Restoring it can make a significant difference to your household’s wealth.