Many people have a false belief that their credit score will come in handy only if they apply for credit cards and loans. On the other hand, being insured is important as it can cover you and your expenses, and also protect your family and your property from any unfortunate happening.
Actually, having a good credit score will help you to appear less risky to the insurers, the thing that will help you save more money on the insurance policies you choose to buy. However, having a bad credit score can directly affect your insurance policies, such as homeowners insurance, auto insurance, and life insurance, and here is how:
CREDIT WILL AFFECT YOUR CREDIT-BASED INSURANCE SCORE
In most cases, before considering extending any insurance coverage, the insurance providers study thoroughly the history of the potential customers and assess the risk factor that can come with selling them any insurance plan. For example, auto insurance might look at your driving history to see how clean it is in order to determine how likely you can file a claim in the future.
Besides, the insurance companies examine the credit report of the consumer to create a credit-based insurance score that is composed of a 3-digit number to evaluate your risk level and set premiums accordingly. According to FICO, 85% of homeowner insurers and 95% of auto insurers use these credit-based scoring versions. However, different from your normal credit score, you are not allowed to know the insurance score that is based on your credit.
CREDIT INFLUENCES YOUR ABILITY TO GET A POLICY
While having poor credit will not prevent you from buying the insurance, it will keep you away from getting the insurance policy you desire. Actually, insurance companies have the right to refuse to sell you a policy in case your credit-based insurance score or your credit is bad, meaning that you will have to work hard to improve your credit or consult different insurance providers.
For example, if you have filed for Chapter 7 bankruptcy in the last year, then you may not able to get a life insurance policy. However, if the bankruptcy has been discharged, you may try to search for an insurance company to have you insured.
CREDITS CAN AFFECT YOUR PREMIUM
For many years, insurance companies depend on your credit score to determine the insurance policy cost or the insurance premium. Put differently, while you can benefit from premiums if your credit is good, expect expensive premiums for your insurance in case you have a low credit score and many negative items on the credit report.
For example, according to Consumer Reports, single drivers who have good credit scores would pay about $68 to $526 every year more than drivers who have high credit scores. Besides, if you have been counted responsible for violating the rules or having an accident, you will be quoted with raised premiums, and even higher if you have a bad credit score.
While this method applies to many insurance providers, including homeowner insurance, renters insurance, and auto insurance, if you have got your health insurance through your employer, your credit score will have no significant importance. But, if you buy your own policy, then your credit will play a major role in determining the premium for your insurance.
However, there are a few states that prevent insurance providers to set premiums according to your credit, such as Hawaii, Massachusetts, and California, for the case of auto insurance, the same for homeowner insurances in Hawaii and Maryland.
In brief, always remember to check your credit report before considering buying any insurance to ensure well representation of yourself. However, if this is not the case, consider waiting for some time and working on improving your credit score first.