Insurance premiums and your credit score
Credit score not only determines your creditworthiness but also influences your insurance premiums. Hence, it is always advisable to maintain a good credit history to build up a remarkable credit profile. Whether you go for a life insurance or auto insurance, credit score has an important role to play in determining your premiums. The greater your credit score, the lesser is your premium. Insurance companies have recently started using the credit report to determine a credit based insurance score. This would enable them to decide on the premiums that the insured is required to pay. The insurance companies are of the view that the claims are made mostly by people having a low credit score. However, this is not always true. In spite of the fact that the credit score does not judiciously determine the risk associated with offering insurance policies, there has been an increasing tendency in recent years to calculate the insurance premiums based on credit score.
If you are about to apply for car insurance, the factors on which your insurance policy would depend are:
Driving history
Claims history
Age
Vehicle age and
Credit history
Again, if you go for a life insurance, the insurers take into account your
Age
Income
Claim history and
Credit score
The credit history is used by insurers to determine your insurance score just to calculate the potential loss that might occur while offering you a policy. Therefore, the better is your credit history; the better will be your credit score and hence higher will be your insurance score. Now higher insurance score would imply that the risk associated with offering you an insurance policy is quite low and so you can expect to get an insurance policy at a reasonable rate.
Just like your FICO score, it is very difficult to know how the insurers calculate your insurance scores. But since premiums depend on factors like your age, income, score, and past claims history of which only the score is under your control, it is important that you build up a good credit history to increase your FICO score. Thus, even if you do not want to go for credit card or a loan and prefer to live within your means, you need to build up a good credit score just to get a low premium on your insurance policies. Please keep in mind that to get really cheap car insurance you will need an excellent credit score.
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