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Understanding Insurance Rates & Credit Scores

For years financial institutions such as Banks, Mortgage Lenders, Automobile Lien Holders & Credit Card companies have used a person’s general credit score (also known as your FICO score) as one method of estimating the risk associated with an individual's application for credit. Consequently, these lenders contend that people with high FICO scores have shown an ability to repay loans and credit cards more consistently than people with low FICO scores. This assumption is then translated into the interest rate which the lending institution will offer to you for providing their line of credit.

In recent years, insurance companies have also begun implementing the practice of considering credit scores as well. These company’s actuarial practices have shown that similarly to how banks view a persons higher credit score as a sign they will successfully repay a loan, that persons with a higher credit score may experience fewer losses and claims. These insurance companies will then offer their products and services at a reduced rate to reflect the lesser degree of foreseen risk involved.

Obviously a credit score is only one part of how insurance quotes and rates are mathematically figured. Past claims history, the type of home or car you own as well as numerous other considerations can play a part. Yet in our modern society this is one aspect of our lives which can certainly save us hundreds, if not thousands, of dollars each year. That aspect is our own individual Credit Score. Whether it’s a better interest rate on an auto loan, home mortgage, credit card, or perhaps a savings on our insurance rates, it’s good to know this figure is something we can, in time, change and benefit from.

If you wish to learn more about your Credit History and Score please visit any of the following: