How Credit Scores Affect Insurance Rates – Yes

Actually, it is the law in many places that insurance companies must inform you that your premium is affected by your credit score. However, as an insurance agent, I found that very few people pay attention when you tell them this fact; and, even fewer actually read the disclosusre statement that comes with their policy.

This results in people who claim that they were never “told that” about their policy. These are the same people who signed or initialed a form stating understood this fact at the same they signed the application for the insurance policy.

Regardless of whether they remember this fact or not; this is a fact that they should be informed about. A poor credit score can cost them hundreds of dollars in premiums; if they have bad credit and they do not take steps to improve their credit scores. Almost all insurance companies that use credit scores to set their rates, check those same scores on an annual basis; and, if the score improves the rate is lowered. However, if the credit score gets worse, the company does not increase the premium; your rate is set at the highest credit score that you have while you are insured with the company.

This is an important fact to know. If you have something go wrong with your credit score; you are better off staying with your current insurance company until your credit score improves again. When your credit score drops, that is not th etime to go shopping for a new insurance policy. Also, if you know your credit score is low; you should look for a company that does not use credit scores to set your premium. There are still a few companies that do not check your credit score. However, companies that do not use credit scores have higher rates overall. While these companies will save you money if you have a low credit score; they will also charge you a lot more than you would pay if you have a good credit score and get insured by a company that uses credit scoring.

If you are worried that you do not have any credit, this is not a bad thing. Companies that use credit scores automatically assign a a good rate to anyone without a credit score. They know that these people do not need credit. They are able to handle their finances by paying cash for everything they purchase; this makes them good credit risks.

Whether you agree with the practice of using credit scores to set insurance rates or not; statistics do show that people with high credit scores file fewer insurance claims on average than people with low scores. This actually does make sense if you look at the situation. People with good credit pay more attention to details and are less likely to have accidents in the first place. Also, people with good credit scores are more likely to have the money to take care of small claims so they never get reported in the first place. A third reason people with good credit scores make good customers, is that they are less likely to let their insurance polices lapse for lack of money.

The fact remains that any insurance company that uses credit scoring should inform theer customers of this fact whether it is the law in their location or not. It is simply good business, even if they do forget that they were told about this policy as soon as they walk out the insurance office door.