The Impact of Your Credit Score on Insurance Rates

A credit score can have a very significant impact on people’s overall financial wellness and their future plans. While many are aware of how their credit score affects their ability to get access to loans and credit cards, far fewer realize that their credit score can also affect their insurance rates. In this blog post, we will explore how your credit-based insurance score affects your insurance premiums and discuss how financial responsibility can directly influence the cost of various types of insurance.

Your Credit Score

What is a credit score? According to the Consumer Financial Protection Bureau, a credit score is “a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports. Companies use a mathematical formula—called a scoring model—to create your credit score from the information in your credit report.”

Credit Scores and Insurance

Banks and other lenders use the traditional FICO or VantageScore credit score to assess financial risk. Insurance companies often use a metric known as a credit-based insurance score to assess your credit history. A credit-based insurance score evaluates your financial behavior and history as it pertains to insurance risk. Insurance companies then use this score to determine how likely you are to file a claim and, as a result, how much to charge you for insurance coverage.

Here's how your credit score can impact different types of insurance:

Auto Insurance

Auto insurance premiums are commonly affected by your credit-based insurance score. Insurance companies think that people with lower credit scores are more likely to file auto insurance claims, so they may charge higher premiums to compensate for the perceived risk. 

Homeowners Insurance

When it comes to homeowners insurance, insurance companies consider your credit history as an indicator of your overall financial stability and general responsibility. A strong credit score can result in lower homeowners insurance rates, while a lower score may lead to higher premiums.

Renters Insurance

Although renters insurance is typically more affordable than homeowners insurance, it still can be affected by your credit score.

Life Insurance

Life insurance companies primarily take into consideration factors like age, health, and lifestyle when determining premiums, but your credit score can still come into play with certain types of policies. For example, some insurers may require a credit check for larger life insurance policies or for those with a savings component, like cash value life insurance.

Fortunately, credit checks performed by an insurance company for rate determination are considered a “soft pull” and unlikely to have a significant impact on consumers’ overall credit scores, unlike a hard pull that a bank or lender would do which could potentially influence the credit score. 

Improving Your Credit-Based Insurance Score

Given that your insurance rates are likely to be affected by your past credit history, it's essential to maintain a good credit-based insurance score. Here are some steps you can take to improve your score:

  1. Pay Your Bills on Time - Consistent and timely payment of your bills is one of the most effective ways to boost your credit-based insurance score.

  2. Reduce Your Debt: Reducing your outstanding debt can have a positive impact on your credit score.

  3. Monitor Your Credit Report: Your credit report will tell you the same information that lenders and insurance companies will see. Regularly review it for errors or discrepancies and address them promptly.

  4. Avoid Opening Too Many New Accounts: Opening numerous new credit accounts in a short period can negatively affect your credit-based insurance score.

  5. Maintain a Mix of Credit: A diverse credit history that includes credit cards, installment loans, and mortgages can be beneficial to your credit score.

Your credit score determines more than just how receptive lenders will be to you. It can directly influence the cost of your insurance premiums and ultimately affect your overall financial well-being both now and in the future. By understanding the connection between your credit score and insurance rates and taking proactive steps to maintain a healthy credit-based insurance score, you will find that your insurance premiums will become more affordable over time. 

If you have any questions about your credit score or are interested in talking about your insurance coverage, please call us at Navisure Insurance Group. It can be difficult to understand the ins and outs of insurance coverage or know which types would be best for you and your family. That’s why we are here to help!


Corey Vandermeer

COREY VANDERMEER | PRESIDENT

Corey started his insurance career in the claims department for a national carrier and learned the basics of insurance coverage and how it’s applied. From there he decided to take the jump into sales and joined an independent insurance agency. Here he learned how to build coverage around the needs of each individual and cater to every client. When Corey decided to start an insurance agency he did so with the intention of simplifying the process of getting insured. With a focus on technology and simplicity; his goal was to create an insurance agency that was different from those currently dominating the market place.

When he’s not working, Corey enjoys golfing, fly fishing and spending time with his wife and kids. Together they enjoy traveling to Northern Michigan and to his wife’s hometown of San Francisco.