When high prices make you feel financially pinched, you look for ways to save money on your expenses, including insurance premiums. One way to do this is to improve your credit score.
Even though they aren’t the same, there is a connection between credit scores and credit-based insurance scores, also known simply as insurance scores. As we explained in “How Your Credit Affects Your Insurance Premiums”:
“Credit-based insurance scores (or insurance scores) are ratings based on your consumer credit information. They use much of the same information to provide a rating as credit scores do—payment history, outstanding debt, pursuit of new credit, credit mix—but they are used to predict insurance losses. As with credit scores, the higher your insurance score the better, because, according to the Insurance Information Institute (iii.org), ‘Insurance claims tend to decline as credit scores improve.’”
And according to this Forbes Advisor article, drivers with bad credit may pay up to 42 percent more for their car insurance than those with good credit. Homeowners insurance rates are also affected by credit scores.
So let’s take a closer look at your credit score, since improving it just might save you money on your home and car insurance.
Credit score factors
A credit score is your credit history reduced to a number between 300 and 850. The higher the score, the better credit risk you are. Scores above 720 are considered good, and those below 630 are considered poor.
There are five components of a credit score:
- Payment history
- Amount you owe (“credit utilization”)
- Length of credit history
- Credit mix—what types of credit you have, such as credit cards, student loans, car loans, etc.
- Hard inquiries for new credit—have you been trying to get a lot of new credit in a short period of time?
The most important of these factors are your payment history and credit utilization.
Five tips to improve your credit score
Though it may take a bit of time, it’s worth the effort to improve your credit score for both your financial health and as a way to lower your insurance premiums. Here are five tips to improve your credit score:
- First, check your credit report for errors and outdated information. By law, once a year you can request a credit report from the three main reporting agencies (Experian, Equifax, and TransUnion—go to AnnualCreditReport.com for more information). One study found that more than one quarter of consumers had at least one error on their reports that would make a difference in their credit score. Look for accounts that aren’t yours, on-time payments marked late, etc.
- Pay your bills on time. The most important and effective thing you can do to raise your credit score. Set up payment reminders or take advantage of auto pay. If you find you’re not going to be able to pay at least the minimum due, contact your creditor to see if they have hardship options available.
- Monitor your credit utilization. How much of your available credit are you using? Are your credit cards maxed out? Pay down high credit card balances when you get the chance. If you pay off a card, leave the account open, even if you don’t intend to use it. Accounts like this help with both credit utilization and length of credit history. Experts recommend keeping your credit utilization at no more than 30% of your available credit, preferably lower.
- Build a credit history. Some people have lower credit scores partly because they don’t have much of a credit history. If you have little to no credit history, build one by applying for a department store or gas credit card. These are usually easy to get. You may also choose to apply for a secured credit card. This card requires a deposit equal to your credit limit. Otherwise, it functions just like an unsecured credit card—you’ll need to pay your bill monthly (the deposit can’t be used to pay your bills, but usually you’ll get that money back when you’re done needing a secured card).
- Keep “hard” credit enquiries to a minimum. Even if you need to apply for credit to build a history, don’t try to open too many accounts in a short period of time. And if you need to shop for a car loan or mortgage, do so in a focused period of time.
No matter what your credit score, L & M Insurance Group can help you find the best deal on insurance
L & M Insurance Group partners with many different insurance companies, so whether you have good credit or bad credit, we can match you with auto and home insurance coverage at the most competitive price. Because we are an independent agency, we have more options to choose from than a captive agency does. Let our agents shop for your best insurance deal—call us at 813-672-4100, or click here to contact us online.
For more information:
How to Improve Your Credit Score
L & M Insurance Group is an Independent Insurance Agency based in Riverview, Florida. We can shop, compare and recommend the home, auto, commercial or life insurance policy that’s best suited for you, your family or your business. Call 813-672-4100 or visit landminsurancegroup.com for more information.