News Column

It's All About The Numbers: Why Credit Is Important--to Your Insurance, And Your Life

September 5, 2014

By a News Reporter-Staff News Editor at Insurance Weekly News -- Having good credit can help you in a surprising number of ways. A good credit history can result in getting that dream job, lower interest rates on car loans and mortgages, and better rates on your insurance, according to the Insurance Information Institute (I.I.I.).

With a solid credit rating in hot markets like Boston, New York City and Seattle, renters will have an easier time finding an apartment and homebuyers may be the first to view properties, giving them an inside edge. It can also lower insurance costs.

While insurance represents only about 5 to 7 percent of a typical housing payment, when you're buying a home, you want to save wherever you can. Many insurance companies give discounts on homeowners policies for those with good credit. (See How to Save Money on Home Insurance for more information.)

Credit Scores vs Insurance Scores

Insurance scores and credit scores differ. Credit scores predict credit delinquency while insurance scores predict insurance losses. Both are calculated from information in a credit report, such as outstanding debt, bankruptcies, length of credit history, collections, new applications for credit, number of credit accounts in use, and timeliness of debt repayment. Insurers or scoring agencies then calculate the insurance or credit score by assigning differing weights to the favorable or unfavorable information in the credit report. Information such as income, ethnic group, age, gender, disability, religion, address, marital status and nationality are not considered when calculating an insurance score.

Credit and insurance scores measure how well individuals manage their money--not how much money they make. And actuarial studies show that how a person manages his or her financial affairs is a good predictor of insurance claims. Statistically, people with a low insurance score are more likely to file a claim.

The good news is, most people have good credit and most people will pay less for insurance than they would if insurance scores weren't considered.

How to Build and Maintain a Good Credit History

1. Pay bills on time. The best way to build a solid credit score is to make

a habit of always paying your bills on time in full each month. Your goal

should be to build a long history of reliable bill paying behavior.

2. Limit the number of credit cards. Have no more than three or four credit

cards and hold on to them for a long period of time.

3. Keep balances low and use no more than 30 percent your available credit.

This, of course, means resisting the temptation to accept pre-approved

card offers in the mail or retail credit cards even though there may be a

discount available for opening a new account.

4. Check your credit report annually. Look for errors and correct them as

soon as possible. By law, you are entitled to one free credit report from

each of the three reporting agencies once a year. Go to

Keywords for this news article include: Homeowners, Real Estate, Insurance Information Institute.

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Source: Insurance Weekly News

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