Where allowed by law, insurance companies use your personal credit as a factor to determine what to charge you for car, home, and business insurance. If you have poor credit, say goodbye to cheap insurance rates. Bad credit will cause you to pay as much as three times more compared to someone with excellent credit!
Some companies are willing to give you a break if you have bad credit. Click Here to receive a free online insurance quote from companies who will not necessarily penalize you greatly if you have had some tough breaks financially. Or let us assume you have fantastic credit, you will find companies willing to give you unbelievably low insurance rates.
Here is a question to discuss. Why do insurance companies use your personal credit in the first place?
Back in 1998 one of the very first companies to roll out credit scoring stated boldly that by using this additional underwriting tool it will help the company better underwrite and control losses, i.e. increase profits for the insurance company.
In theory, someone with a poor credit score is more likely to turn claims in and have accidents. Insurance companies have mountains of statistical data to back them up and have successfully defeated many bills with various state governments who wished to reign in insurance companies use of credit.
That being said, insurance companies will continue to use credit scoring in most areas and you as the insurance buyer need to be acutely aware of how your credit score will impact your insurance premiums.
What steps can you take to improve your credit quickly?
Step 1- Pay all of your bills on time!
This step seems simple enough. When you pay all bills as agreed upon then no “late” payment notices will be reported to the credit bureaus. One “late” payment on your credit report can drop you credit score by a hundred points or more! A “late” payment notice hits your credit report when you go 30 days past your due date without making a payment.
So do not pay your bills late, otherwise your credit score will take a nose dive!
Step 2- Keep your credit card balances lower than 30%!
When your credit limit is $5,000 make sure that your balance is 30% or less. The credit bureaus will give you a substantially better score compared to someone who has a maxed out credit card.
It is a very simple calculation to determine. Take the current balance on your credit card and divide it by your credit limit and that gives you the percentage you owe. For example, you have one credit card with a balance of $1,500 and your limit is $5,000, divide the $1,500 balance into the $5,000 credit limit and that gives you a percentage of 30% or less.
This strategy to improve your credit works. One of the staff writers tested this and reported a 60 point credit score improvement within 2 months on an already great credit score.
If you think that your current insurance company is penalizing you because of your credit Click Here to receive comparison quotes.
More helpful information can be found on our blog showing additional techniques that you can use to get the best insurance score from your company.