You may be aware that your insurance premium is calculated from a number of factors—such as where you live, your age, your claims history and your occupation. However, your credit score also plays a significant role in establishing the cost of your premium.
Keep reading to learn more about why your credit score is used to determine your personal risk and how you can implement credit-bolstering measures to secure a cost-effective premium.
What Is a Credit Score?
A credit score is a number used to predict your credit behavior. For example, how likely you are to repay a loan on time. Credit scores are calculated from the content of your credit reports, but certain providers may use different methods and information in their calculations. For this reason, you may have multiple credit scores.
How Your Credit Score Affects Your Premium
Research indicates that if you are responsible with your finances, you will likely also be responsible when driving your vehicle, taking care of your home and managing your health.
Along with loss reports and other personal information gathered on your insurance application, your credit score is used to determine how likely it is that you may experience a loss. Statistics show that a higher credit score indicates a lower risk, which translates to a decreased rate. On the other hand, a lower credit score indicates a higher risk, which leads to an increased rate.
How to Bolster Your Credit Score
Take the following credit-improving steps to get the best possible insurance rates:
- Pay all your bills on time.
- Keep your credit card balances low.
- Apply for credit cards only as needed.
- Search and select loans, mortgages and credit cards with the lowest interest rate within a specific time period.
- Do not close unused credit cards as a means of raising your credit score. Conversely, do not open new accounts to increase your available credit.
How to Review Your Credit Score
Regularly checking your credit score can help you understand your credit position. It can also show you what potential lenders will see when you apply for a loan or credit card.
There are multiple ways you can check your credit score, including the following:
- Check your financial institution, loan or credit card statement. Many banks, credit card companies and loan companies will provide credit scores to their customers. You may be able to find your credit score on your statement or by accessing your online account.
- Buy your credit scores directly. You can pay to have your credit scores calculated by three major credit bureaus—Experian, Equifax and TransUnion—or from another provider, such as FICO.
- Use a credit score service. Some sites provide free credit scores to users. Other sites may offer credit monitoring services for a monthly fee.
To receive an accurate copy of your credit score, be sure to contact a trusted organization. The best organizations to contact for this information include Experian (1-888-397-3742), Equifax (1-800-685-1111) or TransUnion (1-800-888-4213).