There’s one factor that impacts virtually everyone I talk with about personal insurance whether we’re talking about renters, home or car insurance. Most people don’t know about it either unless we’ve had the opportunity to discuss it. It’s your credit score.
Most people ask me, “What’s my credit score got to do with what I pay for insurance?” I asked the same question when I found out about, but credit does play a role in what we pay for personal insurance policies.
About 10 to 12 years ago, a study conducted by a large university demonstrated three things;
- There is a statistical relationship between credit scores and a person’s frequency of filing a claim.
- Credit is an accurate predictor of future claims history.
- People with good credit file fewer claims than people with not so good credit.
As a result, people with good credit pay less for their personal insurance than people with not so good credit.
When I share this with people there usually are a couple of questions I get on a consistent basis.
- When an insurance agent quotes insurance do we run a credit check? The answer is no, insurers conduct a soft analysis of existing data which does not adversely affect a person’s credit. There is not “hit” to your credit score.
- Do we see your FICO score? No, we do not see your score. Some companies show nothing while others show a rating either alphabetic (A-Z) or a word such as fair, good, better, best.
- Can you give me your FICO score so I can work up a quote? No, there’s no place on any carrier’s system to input a FICO score.
- If we’re working with a couple, most insurers will utilize the higher of the two credit scores represented.
I’m not crazy about this concept. When I learned about this, I’d just gone through a divorce. Like many people I knew that had gone through divorce, my credit took a beating. It didn’t quite seem fair to me as a consumer, however, I had to work within that just like anyone else who’d been through a divorce or a similar situation. Ultimately I was able to find affordable coverage in spite of what I went through financially just as I’m able to help many people the same way.
Do you know what your credit score is? Do you know what to do about improving your credit? We’ll tackle both of these questions in the next two blogs. If you have any questions, let me know.