This article was written by Candace Jenkins on Trusted Choice on Aug. 5, 2020. The original blog can be found here.
(Get advice from a leading financial expert, Grant Botma.)
You may be aware of how your credit score will affect purchasing a home or taking out a credit line, but what about your insurance? If you’ve ever wondered how your credit score impacts your insurance premiums, look no further.
TrustedChoice.com has partnered with financial expert Grant Botma of Stewardship on credit scores. If you want to know more specifics on your credit score and insurance, connect with a local independent insurance agent.
How Does Your Credit Score Affect Insurance?
According to Botma, “You first need to know that your credit score and your insurance score are two very different things.” Your insurance score does not count as an inquiry and has zero impact on your credit score.
Your credit score will usually only harm your credit report if you have multiple inquiries of an adverse nature. This means if you are applying for lines of credit at various retailers. Botma states, “This looks like you are in the market to take on a lot of debt, and lenders don’t like that.”
“While your credit score doesn’t directly impact your insurance premiums, your insurance score does.” —Grant Botma
Credit score vs. insurance score:
Credit score: A credit score is a measure to determine your credit risk to potential lenders. Your credit score will factor in your debt-to-income ratio, and if you pay your bills on time.
Insurance score: Your insurance score is a non-inquiry score that takes into account your credit score. The carriers will use your credit score to determine if you are more likely to file a claim or miss a payment.
Botma states, “Most consumers with bad credit scores are statistically more likely to file an insurance claim. These consumers are also more apt to miss a payment or go delinquent. Your credit score is really a measure of how financially responsible you are, and carriers use this when determining your premiums.”
Does an Insurance Score Affect Your Credit?
As you just found out, your credit score does impact your insurance score. Which, in turn, affects your insurance premiums. However, Botma says, “Your insurance score has zero impact on your credit. In fact, it doesn’t even qualify as an actual inquiry when your insurance score is run.” If you are in the market to purchase a home or a vehicle and worry about your insurance score affecting your closing, don’t be.
Your insurance score is used only by insurance carriers to determine premiums. Some other items that determine your insurance premiums are as follows:
- Your age
- Your loss history
- Where you live
- The year, make and model of any vehicles being insured
- The age and replacement cost of property being insured
- Your motor vehicle records
- How many years you’ve been insured
- If you’ve had any lapses in coverage
- How much coverage you choose
- Any credits or multi-policy discounts
If you’re unsure where your premiums stand, connect with your local independent agent. These agents can shop your rates with dozens of carriers at once, saving you time and money.
Do Insurance Quotes Affect Your Credit Score?
In simple terms, no. Botma states, “The same way your insurance score doesn’t affect your credit, neither does running insurance quotes. If anything, shopping carriers shows lenders that you are careful with your purchases and are a responsible consumer.”
He says, “This myth that insurance scores are similar to or the same thing as pulling your credit score needs to be clarified. Most consumers are in the dark when it comes to insurance how-tos because that’s why they have an agent. However, a little education goes a long way toward a better understanding of how insurance works.”
Insurance quote process:
When you work with an independent insurance agent, they will use your personal information to provide the best quotes through their carriers. They will need the following data to be successful:
- Your name
- Your address
- Your Social Security number
- Your driver’s license number
- Your vehicle identification number
- The year and structural details of your property
- The coverage you desire
Then your agent will plug your personal data into their rating system and quote with multiple carriers. These carriers will run your insurance score while quoting your insurance coverage. This will not impact your credit score or show as an inquiry and is a way for your premiums to be determined. Once rates are offered, your agent will present the best options based on coverage and pricing.
Does Your Credit Score Affect Car Insurance?
The same way that your credit score determines your insurance score and thus determines your premiums, yes. Again, if you have a bad credit score, carriers take that into account and raise premiums.
On the flip side, if your credit score is fantastic, you will get more competitive rates. Car insurance premiums have risen in the past decade. This is partially due to the number of drivers on the road and the claims that have been filed. With more people, more accidents occur. The factors that impact your auto insurance premiums are good to know so you can be prepared.
Car insurance rating factors:
- Your insurance score
- Your location
- The year, make, model, and value of your car
- Your claims history
- The number of drivers in your household
- The motor vehicle reports of all household drivers
- If your car insurance has ever lapsed
Your auto insurance is individualized and based on your specific information. To know how much you’ll pay and the coverage you need, get with your independent agent. An agent can get specifics and customize your auto insurance according to your needs.
Does Your Credit Score Affect Homeowners Insurance?
Yes. Botma says, “Your credit score will affect how much you pay for insurance. The insurance carriers are all about risk minimization, and the riskier you appear, the more they’ll charge. All you have to do is stay true to your commitments. If you say you are going to pay a loan or a bill each month, make sure you do. We advise all our clients to take a look at their financial commitments and consistently pay them until they are paid off. This will increase your credit score over time and may even help with your insurance premiums.”
Other homeowners insurance rating factors:
- Your address
- The year, quality, and materials of your home
- The replacement cost of your home
- The pets you own
- The value of personal belongings you own
- Your claims history
- If you have any other structures and their values
- Policy discounts and credits that may apply
Your home is unique and rated accordingly. What you pay for homeowners insurance won’t even be the same as your next-door neighbor. It’s important to remember that each policy you own is customized and specific to you. You can discuss your home insurance needs with your independent agent.
TrustedChoice.com Article | Reviewed by Grant Botma