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Why Does Credit Affect My Insurance Premium?

People with high credit scores file fewer claims.

Credit and How it Affects Your Insurance Premium

On the surface, it doesn’t make sense. The way a person manages their finances doesn’t seem connected to how they drive. And it certainly doesn’t feel related to home insurance claims. But, statistics is a weird and wonderful field. Numerous studies have shown conclusively people with high credit scores file fewer claims. This means that insurance companies can afford to charge them less premium.

The Link Between Credit and Claims

The are several possible explanations for this link. Perhaps people who carefully manage their finances are more likely to be careful in their driving. Maybe they are more likely to properly maintain their homes and cars. In this case, a good score may be an indicator of a cautious person.

But correlation doesn’t imply causation. In other words, just because the two are related doesn’t mean that one causes the other. This isn’t a foolproof system and no rating system is. Someone who loses their job due to the bad economy and falls behind on a few bills doesn’t turn into a bad drive. In general, more people benefit from this rating system than are hurt unfairly.

To keep your credit score high and premiums low, try some of the following.

  • Pay your bills on time. Consider setting up automatic bill pay.
  • Close unnecessary accounts. You can find these on your credit report.
  • Don’t let your debt exceed what you can comfortably handle at your income level.
  • Make sure you use your credit from time to time. Using cash may make it impossible to miss a credit-card statement, but it might not improve your score.

If you feel like your premiums may be too high, contact Capitol Insurance for a free, no-obligation quote.