Did you know your credit score can be used for more than just getting a bank loan?
These days many types of organizations use your credit score to determine how much they will charge you to do business with them.
If you live in a state other than California, Hawaii, Massachusetts or Michigan, your insurance carrier has the right to use your credit score as one of the factors that determine your auto insurance premium.
Why are insurance carriers using your credit score? Insurance is all about assessing risk or exposure to loss.
In the past, auto insurance has always been rated on the vehicle itself. These days, given the many technological improvements to vehicles, insurance companies have decided to assess the risk of the vehicle and the driver.
Research shows people’s financial traits cross over into other parts of their lives.
People with higher credit scores pay their bills on time and use good judgment with credit card limits.
They also carry over their good judgment to driving and tend to get into fewer accidents.
People with lower credit scores don’t pay bills on time, have a high debt-to-credit ratio, and are more likely to have accidents and file claims.
Therefore, insurance companies base your premium on your credit score. And those with lower scores should start working on improving them.
Here’s how: pay bills on time and reduce credit card debt. Thirty-five percent of your credit score is weighted on paying your bills on time, and credit card debt represents 30%. You also can boost your score an additional 15% by keeping longtime accounts open.
Best of all, be in control of your financial picture. The better your credit score, the better you are handling your finances. Banks, insurance companies and others will take notice and you will reap the benefits.