Most people understand that their credit history has a lot to do with their ability to secure a loan, find a place to live, and even obtain a cell phone. But, many are unaware that their credit score can also affect them when purchasing insurance.
When underwriting and setting the rates for insurance policies, insurance companies generate a ranking known as an “insurance score.” This number is based on a person’s history. Insurance companies use credit to determine risk, since numerous studies have revealed that how a person manages his or her financial affairs is a good predictor of the likelihood of insurance claims. Historically, people who have a poor insurance score are more likely to file a claim.
Once you have been assigned an insurance score, insurers differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming. It is for this reason, that we recommend establishing a sound credit history and checking to make certain your report is accurate. The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies – TransUnion, Equifax, and Esperian – provide you with a free copy of your report, at your request, every 12 months. Reports can be ordered from AnnualCreditReport.com.
For more information on how credit can affect your insurance rates, contact Soucy Insurance at 762.2218.