How would you like to pay less for your home and car insurance? I don’t know of anyone who wants to pay more than they need to! Most people I talk with realize paying less for their insurance is attainable simply by improving your credit, or insurance, score. People with good credit pay less for their insurance than someone with not so good credit.
Texas is one of several states which permits insurance companies to use credit as a factor in determining the rate you pay for home and car insurance. Some permit credit based scoring to be used on property insurance only such as home and auto, while other states allow it to be used on other policy types such as umbrella, life, and more.
This practice began about 15 years ago resulting from a study conducted at a Texas university. The study found people with poor credit are more likely to file an insurance claim than people with good credit, therefore, insurance companies determined that your credit score is a good predictor of future claim activity. This is why people with good credit pay less for their insurance while people with lower credit scores pay more.
As I’ve talked with clients and prospective clients, there are two questions that are routinely asked:
- What does credit have to do with a person’s home or car rate if they haven’t filed a claim? There is no link between prior claim activity; this is a predictor of future claim activity.
- This practice seems to be unfair, penalizing people with a lower economic standing. I don’t disagree. There are many reasons a person can have poor credit such as medical issues and expenses, a layoff, divorce, etc. It’s the reality of insurance in Texas and to know that credit is a factor is to be able to do something about it.
The first step in improving one’s credit is to know what it is which is why I encourage people to order your free credit report each year. The free version won’t give you your FICO or numeric score but it will help you see what the three bureaus have noted on you. This can be enough information to clear up any incorrect items on your report. I also recommend paying for the reports credit score versions of your reports. Knowing your number can be very helpful in creating your goal to a better score.
Improving your credit doesn’t happen overnight, it takes time and discipline. The reward for improving it has many financial benefits including paying less for your insurance! Share any suggestions you have for improving your credit, along with your questions and comments on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
