How does my credit affect my auto & home insurance?
This might be news to you but did you know that your credit directly affects how much you pay for insurance? It’s true! Almost every major insurance company uses some type of credit based rating factor to determine your rates. CJ Hutsenpiller explains how that works and how to use it to your advantage! Be sure to check out the transcription of this video below.
So today’s topic is one that a lot of people don’t realize and it is how credit affects your insurance pricing. Many people don’t realize that credit is the #1 factor in insurance pricing for a large number of insurance carriers. So obviously knowing how that factor is used can be a big deal for you. I did a little research this morning because I was curious as to some of the numbers behind this. I ran some numbers using an account I had quotes for and changed the credit rating for them. So at excellent credit, the rate they had was $1,107 per year. I changed their credit from excellent to go just good and it jumped to $1,310 per year. I changed it to poor $2,102. S that is over $1,000 difference in rate between excellent and poor credit. As a
I did a little research this morning because I was curious as to some of the numbers behind this. I ran some numbers using an account I had quotes for and changed the insurance score rating for them. So at an excellent insurance score, the rate they had was $1,107 per year. I changed their insurance score from excellent to go just good and it jumped to $1,310 per year. I changed it to poor and the rate was $2,102. That is over $1,000 difference in rate between excellent and poor insurance scores. As a test, I added a DUI to someone’s record who had excellent credit and they still came out cheaper than the person with a clean record but low insurance score.
So that is what I am going to talk about today and how and why. First of all, it is important to understand that they are not using a credit score, a lot of people think your credit score is what they are looking at. However, that is not the case as insurance companies use insurance scores. Now they are very closely related to each other but they are different. A credit score tells a financial institution “How likely is this person to default on the debt?” Whereas an insurance score tells an insurance company how likely is this person to file a claim. Now, most people will say there is no way that my credit is related to that. Unfortunately, that is actually the case. Statistics prove that there are factors in your credit that will directly relate to loss frequency. Some of these things are bankruptcies, judgments, collections, the number of accounts in good standing, and payment made on time. So they will look at all of those factors and that develops your insurance score. Every insurance company uses these factors differently, so there is no way to pinpoint what each company is looking at specifically other than those general factors. However, there are a couple of insurance companies out there that do not use insurance scores, which is great if you have bad credit, but bad if you have good credit. Credit based insurance scores don’t factor in a job, income history, gender, or other personal information like a credit score.
User Question: What kind of account in good standing? Think about it like this. They are looking for any kind of collection account you may have. Maybe you are overdue on a tv bill or you’ve got a collection from a cell phone company. Things like that are what they are looking for. So if you have several accounts that are all in good standing, it’s going to look better on your insurance score.