Ever wonder why your credit score impacts your home and auto insurance rates? It comes down to risk. Insurance companies want to attract customers who are less likely to file claims—and the data shows that credit history can help predict that.
Back in the 1990s, insurers noticed a trend: people with lower credit scores tended to file more claims, and those claims often cost more. That pattern held true across both home and auto insurance. The reason why isn’t fully understood, but the link is consistent—kind of like how students with good grades often do better in life.
This led to the creation of the insurance score, which is based in part on your credit history. Every insurance company has its own formula, but common factors include how you pay bills, how much debt you carry, and your claims history. Insurance companies use insurance score discounts to attract people with better insurance scores.
When you first sign up for insurance, your insurance score is calculated based on data from credit reporting agencies—data the insurance company pays to access. To keep costs down, some insurers don’t update your credit data every year. But you can check your own credit for free. If your score has improved, ask your insurance company to review your insurance score at your next renewal.
If your credit has taken a hit and your insurance score discount drops, don’t panic. Different insurance companies calculate insurance scores differently. Your independent agent can shop around and may find you an insurance company whose insurance score calculation is more favorable for you.
The bottom line: your credit can make a difference in what you pay for insurance. Stay on top of it, and if you’re not sure how it’s affecting your rates, have a good conversation with your insurance agent. It could save you money.
