You already know that your credit score is the primary factor used to determine your eligibility for various types of loans but did you know that your credit affects your auto and homeowner’s insurance rates, too?
Insurers use something called your credit-based insurance score to determine how much you pay for coverage. Here’s what you should know about this number, and how you might be able to lower your rates.
What is a credit-based insurance score?
Your credit-based insurance score is NOT the same as your FICO credit score. It’s based on some of the same factors, but excludes personal information like your gender, job and income history. It does look at the length of your credit history, your open accounts, credit line utilization, payment history, credit inquiries and other typical credit factors.
How do credit-based insurance scores affect insurance rates?
In almost every state, including New Jersey, credit-based insurance scores are used as a predictor of insurance risk. Just like loan interest rates, the lowest insurance rates are reserved for the people with the highest scores—those who have long, established credit histories, low credit line utilizations and a history of on-time payments.
The reason for this is because a pair of studies—one by the University of Texas in 2003 and the other by the Federal Trade Commission in 2007—found that drivers with higher credit scores tend to get in fewer accidents and incur fewer car insurance claims and losses.
Credit-based insurance scores are only one factor affecting your insurance rates, along with your driving record and claim history.
How can I see my credit-based insurance score?
You can purchase your official credit-based insurance score from a number of providers including Lexis Nexis and TransUnion. You can see your TransUnion credit-based insurance score for free if you sign up for an account with Credit Karma.
Check your credit report early
If you’re planning on shopping around for any kind of insurance, including auto insurance and homeowner’s insurance, you should check your credit report. This will allow you to spot and potentially correct any issues that could bring down your credit-based insurance score. Look for common problems like late payments or a series of credit inquiries.
Late payments stay on your credit report for up to seven years, but it’s possible to get one removed if the information is inaccurate or if there were extenuating circumstances.
If your credit report shows a number of recent inquiries because you’ve recently applied for some kind of loan, it might be worth waiting a little while to change insurance.
If you need help or advice on finding the best insurance, contact the professionals at John B Wright Insurance. They have decades of experience finding the best coverage for Monmouth County, New Jersey, residents.
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