Credit Scores and Insurance Premiums
Nobody likes paying insurance premiums, but everyone loves having protection when an accident happens. Paying your car insurance premium or your home insurance premium every month is a chore, but we do it because we know it is worth it. We know that insurance is there to make us whole when we experience a loss. However, it would still be nice if we can decrease the amount we pay each month for our insurance premiums. A lot goes into calculating the premium for your car insurance and home insurance. One component for many insurance carriers is your credit score. Your credit score can impact your premiums. Finding ways to enhance your credit score can lower your premiums. Here are some things to consider …
What Goes Into a Credit Score?
Your credit score is a number between 300 and 850 that assesses a person’s credit worthiness. There are three credit bureaus that assess your creditworthiness. These are Experian, Transunion, and Equifax. An excellent credit score is one that is in the 781 to 850 range. A very poor score is one that is between 300 and 499. Everything in between varies because credit scores are calculated through many factors. The first common factor is your debt to income ratio. The debt to income ratio is the comparison between your outstanding debt and the amount of money that you receive. The more debt you have, the lower your credit score will be. These debts can be from outstanding loans, credit cards, car leases, or other sources of debt.
Another part of your credit score is the history you have with lenders. Every time you ask for a loan, credit card, financing application, or even something like a mortgage. The more you apply for different loans, the more your history racks up. Another part of your history is your payment history. If you are late to pay back a loan, it will get reported to all three credit bureaus.
How Can I Enhance My Credit Score to Lower Insurance Premiums?
Having an excellent credit score is a great way to increase your chances of qualifying for lower insurance premiums. Here are some ways that you can improve your credit score so that you can get your dream house today:
Pay your bills. Payment history has a large impact on your credit score, so it is important to always pay on time. Charging all of your monthly bills to a credit card could help in case you forget to pay your bills.
Keep your credit utilization low. Credit utilization is calculated through the percentage of debt you have. For example, owning one credit card and using all of the available funds on the card would put your credit utilization at 100%. This is not a great spot to be in because it tells lenders that you are very reliant on borrowing money. As a rule of thumb, you should keep your credit utilization ratio to around 30%.
Limit “Hard Inquiries”. Hard inquiries occur when you apply for credit. This could be a credit card or a loan. The process requires the lenders to look at your credit and determine if you are worthy for the loan. If this ends up on your credit then it is a hard inquiry. Limiting these can help your credit.
Consolidate your debts. If your debt is spiraling out of control, debt consolidation may be a good option for you. This entails taking out one large loan to pay off all of your other debt. This could be advantageous if you get a lower monthly payment or lower interest on the loan.
Final Thoughts
Insurance is there to protect our assets when times are toughest and rebuild in the face of disaster. No matter how much insurance costs, the peace of mind it provides is well worth it. However, it still makes sense to take every opportunity possible to reduce what you spend each month on your car insurance and home insurance premiums. Enhancing your credit score is a great first step. If you would like to learn more about how your credit score can impact your insurance premiums, contact us. The insurance professionals at Streamline Insurance are excited to walk you through everything that impacts your premiums.
