Do Higher Credit Scores Get Better Rates?
August 27, 2024
Generally speaking, the better your credit score, the lower your insurance premiums may be for both home and auto insurance. It’s all about odds. Insurance carriers in the Sunshine State believe in applying the correlation between the potential for claims verses the insured’s current credit worthiness.
Most insurance companies use a credit-based insurance score (CBI) that provides a numerical score based on the information provided by the insured’s credit report. In addition, each provider is allowed to set their own criteria for evaluating your credit scores based on formulas as to how it impacts your insurance rates.
Even if you have a poor credit score, there may still be steps that you can take to get better rates. For starters, credit utilization is frequently recalculated and there are steps you can take to improve your credit scores almost instantaneously. Although a credit monitoring app or service company can’t change your score, tracking your numbers can help you better manage your credit going forward.
Is it legal to use my credit scores?
The Fair Credit Reporting Act (FCRA) clearly states that insurance companies can access your credit information with “permissible purpose” and without your permission. The Florida Statutes § 626.9741 defines the use of credit reports and credit scores that apply to lines of personal motor vehicle insurance, homeowner’s insurance, and mobile home insurance, as well as cooperative unit, tenants, and condominium owner’s insurance.
The purpose of the statute is to both regulate and limit the use of credit reports and scores by insurers for underwriting or rating purposes in the Sunshine State. Insurance companies are not allowed to request a report or score based upon the race, color, religion, marital status, age, gender, income, national origin, or place of residence of the applicant or insured. Plus, the insurer must inform an applicant or insured that a credit report or score is being requested.
Credit Info Insurers Tend to Seek
Insurance companies in Florida primarily use your credit scores to help determine premiums. This is because customers who have more favorable credit scores are considered to be a lower risk candidate for filing insurance claims, whereas people with poor credit scores tend to be less risk averse. For example, if you’re a homeowner with a solid history of making mortgage payments on time, carriers believe you’re more likely to take better care of your home.
Consumers with higher credit scores and better reports are viewed as being financially more responsible. Discussed below are some of the important credit considerations:
Payment History – The frequency and number of late payments as well as the number of days elapsed between the due date and late payment date are used in setting homeowner or car insurance rates.
Open Lines of Credit – The amount of time you’ve had credit and the number of major credit cards, retail store credit cards, pre-approved lines of credit, and other financial arrangements with a lender does matter.
Negative Events – Financial discrepancies, such as bankruptcy, foreclosures, liens against the property of the debtor, high debt to credit utilization ratio, charge-offs, and collection accounts can have a negative impact on rates.
Outstanding Debt – When providing insurance quotes, carriers can calculate how much money you owe compared to how much credit you have available in order to estimate premiums for the coverage you need.
Inquiries for Credit - Credit inquiries come in two forms. Hard inquiries occur when you apply for credit and can negatively impact scores. But, soft inquiries to review or pre-screen data is not considered during rate quoting.
If you are young or someone who hasn’t established a credit history, insurance companies may not find an established credit score. There are people who do not believe in using credit and always make payments in cash as well as widowed or divorced partners who’s previous credit data was all in their spouse’s name. When an insurance company cannot find meaningful credit history, they will not charge you their highest rates, but you shouldn’t expect to get their best rates up front.
Ways to Lower Your Insurance Rates
Paying your bills on time is a major factor that can help to reduce premiums for homeowner’s or auto insurance in Florida. Other tips include to avoid applying for too much new credit and always make the minimum payments due on time. Plus, you can have negative credit entries removed once they are paid off. But regardless of your credit score, there are several ways to reduce what you spend on auto insurance premiums now – and in the future.
After Hurricane Ian wreaked havoc on parts of the Gulf Coast, experts correctly predicted that homeowner insurance would rise due to over a half a million residential property claims. Coupled with laws that make it easier to sue property insurers in Florida, it has caused the cost of reinsurance in the Sunshine State to skyrocket. It is highly recommended that you discuss your specific needs with an independent agent to help determine your best options.
As for reducing car insurance rates in Florida, it is important to drive safely and keep a clean driving record. By working with an independent agent at Nsurance Nation, you may be able to combine discounts or bundle different insurance types to lower your premiums. It also helps to smartly select the model of car that you intend to drive. Some insurance companies give credit for taking Driver Education courses or offer programs that track driving habits to award safe drivers.
Yes, better credit scores can get you better rates. However, even if your scores aren’t the best, contact an independent agent at Nsurance Nation to find out more about the discounts our selection of insurers may offer. That way you can get the best deal possible for your current insurance needs.
