When determining insurance premium amounts, an insurance agency uses various formulas that calculate risk, both theirs and their customers.
One such detail that they use to determine a customer’s risk and whether that customer will be a significant liability to them is looking at that person’s credit score.
Though insurance agents have been pulling credit scores when giving new insurance quotes for decades as part of the accepted quoting process, many people seeking insurance for their cars, homes, and other property don’t see the connection.
The relationship between the two is actually fairly significant.
Why Are Credit Score Looked At For Insurance Rating Purposes?
So, why do insurance agencies look at the credit scores of new, potential customers when giving an insurance quote?
Research on risk and which customers are likely to cost an insurer more money suggests that those with lower credit scores make more insurance claims.
Conversely, those with higher credit scores are found to make fewer insurance claims.
This risk assessment is essentially based on basic math and what the research shows.
This Initial Rating Can Be Adjusted
What those looking for insurance should know about this is that a lower credit score does not have to negatively affect their insurance rating forever.
While insurance agents use credit scores for making an initial quote, customers can always ask for a new quote in the future, even as a customer, if their credit rating has increased significantly since starting their policy.
Sometimes that can result in a lower risk assessment and an adjusted premium.
Also, re-running a credit inquiry for insurance purposes is considered a soft-inquiry and does not affect their credit score in any way, so there really is no harm in asking.
Lower Credit Rating Not Always Known
Fortunately, a decrease in credit score does not mean an insurance ageny will find out about it and immediately raise the premium.
In most cases, a lowering score does not affect anything as long as the customer has continued to pay their insurance premium payments on time and they have not made excessive claims.
If their claims habits suddenly change along with their credit scores, that could raise concerns that result in an increasing policy premium due to more claims being paid out.
In Summary
Ultimately, while some customers shopping for insurance might find their rates a bit higher if they have a low credit score, the good news is that there are things they can do about it.
With improving credit scores and avoiding making frequent claims, customers with the help of their insurance agents can keep their rates from rising and sometimes even get a slightly lower recalculated premium.
The lower the risk level they are to their insurance agency, the more affordable their insurance will be.