Impact of credit score on your insurance premiums

Your credit history and hence your credit score can significantly affect your insurance premiums. The cost of your insurance may increase with decreasing credit score – be it personal insurance or an auto insurance. Hence a low credit score would imply a higher insurance premium and a high score would give you the best deal in insurance premiums.

The reason behind this is simple. The insurance companies are of the view that people who have a bad credit history are more likely to file personal insurance claims and hence to minimize the risk, they charge high insurance premiums form these people. Similar is the case with car or auto insurance policies. In addition to your credit score, auto insurance premiums also depend on a few other factors like the type of the car you drive (for example, racing cars are more prone to accident and hence has a high insurance premium), the security system in your car, and the driver’s driving history (more than three speeding fines and two accidents with cost you with more premiums).

Most insurance companies depend on the credit based insurance scores (a numerical ranking which is based on the individual’s credit history or in other words how an individual handles his daily financial matters) to determine the risk involved in offering an insurance policy. These scores help insurers predict the future performance of an individual and hence minimize the risk. The insurance companies use the insurance scores prepared by Fair Isaac which are referred to as Inscore by Equifax, Fair Isaac Insurance Risk Score by Transunion and Fair Isaac Insurance Score at Experian.

A credit score of 700 and above implies that you have a excellent credit score and therefore you can expect the best deal in the insurance premium. However, if your score falls between 650 and 700, it is still a good score and you can expect low insurance premiums. Between 600 and 650, the score is still good, but if the score falls below 600, it is very difficult to get a insurance policy with premiums at competitive rates.

So to get insurance premiums at favorable rates it is always advisable to maintain a good credit score. For this, one should always go through the credit reports periodically and report any discrepancies to the credit bureaus immediately and remove it from the credit report. A good credit score always helps you not only to get good insurance premiums but also a favorable interest on your credit, a good job and much more.