Have you recently applied for a homeowners insurance policy? What about a car insurance policy? The cost of insurance seems to go up every year especially in New Orleans, where the threat of flooding and other natural disasters increase the cost of your coverage.
While you can’t control mother nature and its effect on the cost of your insurance, one thing you can control is your credit score, which plays a big factor in determining your insurance premiums.
Having a good or bad credit score directly affects how much your insurance premium will be. The lower your credit score, the higher your premium and vice-versa.
How do credit companies calculate my credit score?
While each credit company calculates credit scores a little differently, here are the basic factors that determine credit scores:
- Any Bankruptcies, collection activity, home foreclosures, tax liens, etc.
- Frequency of late payments
- Total number of lines of credit
- Amount of credit in use and credit history
- Outstanding debt
NOTE: If you don’t have any credit history or enough of a payment history to calculate a credit score, under law, insurance agencies cannot increase your insurance premium or deny you coverage.
How does my credit score affect my insurance premium payments?
Credit companies create your credit score determined by the factors mentioned above which insurance companies use to help them decide what your annual premiums for your insurance will be. The industry began using this method because they believe there is a direct correlation between a consumer’s payment history, financial dependence and insurance losses.
Insurance companies use this information in two ways:
- Ratings: determines the premium that is charged on an insurance policy. A bad credit history will increase the premium amount.
- Underwriting: this is the process when an insurance company decides what risk a person could be. History has proven that a bad credit history usually means that a person is more likely to have a claim, therefore giving them a higher premium.
NOTE: It’s important to note that insurance agencies do not see, nor access your credit score. Also, when you receive various quotes from different companies, the insurance company’s process for checking your credit is not considered an “Inquiry,” and therefore does not and will not affect your credit report.
How can I lower my insurance premium?
The best way to lower your insurance premium is to improve your credit score. Here are are few tips to get you started on improving your credit score:
- Pay your bills on time
- Keep balances on your credit cards low
- Apply for new credit cards and open new credit card accounts only as needed
- Pay off your debt instead of moving it from card to card
- Don’t close unused cards to improve your credit score – owing the same amount but having less open credit card accounts may lower your score
Take your credit seriously
If you have a bad credit score talk to your insurance agent or insurance provider directly and find out the exact factors used to calculate your credit score. Once you know what your insurance agent is looking for, take the time to rebuild your credit.
Having a good credit score will lower help your insurance premiums and save you many headaches in the future when applying for a new loan or renewing insurance. Plus, here in New Orleans, any steps you can take to lower your insurance premiums are worth it!