Your Credit Score Affects a Lot More Than Credit

Clients often seek our help with their consumer debt issues.  We help clients with debt related to credit cards, medical bills, foreclosures, garnishments, or repossessions.  Often times we find that their best solution is to file for bankruptcy.  After this determination, the next question is usually, “how will this affect my credit score?” or “will I still be able to get a loan?.”  The short answer is, it depends and yes.

Many of these clients are aware that their credit score impacts the ability to get a loan or credit card.  However, most people do not know that credit scores also impact other areas of their life.  Over the next few blogs I will examine how your credit score affects insurance, renting, employment, and even utilities. Today we will look at the impact of your credit score on your insurance rates.

How may your credit score impact your auto insurance?

Along with your credit score, many U.S. care insurance companies use your driving history, claims history, and other factors to help determine your insurance rates.  The insurance companies believe there is a correlation between your credit score and the risk you present as a driver.  Insurance companies contend that higher credit scores indicate safer drivers and cost insurance companies less money. While I’m not completely sold on that idea, the end result remains that the car companies still use your credit score to help determine the auto insurance rates you are going to be paying.

The credit score that the insurance companies use is a little different than the credit score banks or lenders use when determining your interest rate and whether or not you qualify for a loan.  The credit score that the insurance companies use does not factor in your job, income history, gender or any other personal information.

It’s important to get quotes from multiple providers since insurance companies use their own scores and in different ways.   Don’t forget to look online, and talk to several carriers prior to selecting one.

What if you are denied insurance or your terms are less favorable?

If you are denied insurance, or offered less favorable terms, because of information on your credit report, you still have some rights.  You can request the creditor give you a notice that includes the name, address, and phone number of the credit reporting company that supplied the information.

Other questions to ask include:

  • -If a credit scoring system was used, what factors were used and how can I improve my application?
  • -Why am I not getting the best offer?

Hopefully the answers to these questions will help point you in the right direction. Regardless, the next step is going to be to increase your credit score.

How can I increase my credit score?

There are a number of factors which will influence your credit score.  Some of those factors include: payment history, debts owed, length of credit history, new accounts, and balance of accounts.

One of the most important factors in your credit score is the amount of debt you owe.  This includes the number of debt accounts you currently have, the types of accounts (credit card, installment, collection, etc.), and their balances. It is best to have a few credit cards and open credit accounts with low balances.  In general, using only 30% of the available credit improves your credit score.

Another factor in your credit score is your payment history.  A long record of on-time payments demonstrates an individual who has been reliable for a significant period of time.  It’s vital to your credit score to always pay your bills on time.

Another factor is the length of credit history.  The longer your credit history with a certain account, the better.  These long payment histories can be for houses, vehicles or even credit cards.

Once your credit score improves be sure to contact your insurance company to ask for a rate adjustment or shop around for lower rates from different insurers.

Bottom Line

The bottom line is that your credit score will impact your insurance rates and because Michigan law requires drivers to be insured, your credit score will ultimately impact your monthly expenses.  If you’re looking to save on car insurance make sure to improve your credit score, track your credit report and be proactive responding to inaccurate information.

The Fair Credit Reporting Act (FCRA) gives everyone the right to obtain a free credit report once a year.  I suggest pulling one report from each of the three major credit bureaus (Transunion, Equifax, and Experian) every four months.

Check back next Wednesday to read about how your credit score could impact your current and potential employment