- When insurance companies calculate your insurance premiums, they use many variables. Your credit score has a direct impact on what the insurance company quotes you for your rates. If you have a low credit score, you will have to pay higher insurance premiums. If you have a high credit score, your insurance premiums will be lower and more affordable. Insurance companies believe there is a direct correlation between how many claims are filed and your credit score.
- According to Bankrate, those with lower credit scores file 40 percent more claims than those who have higher scores. Since they file more claims, insurance companies charge more money for premiums to make up for this cost increase.
- Although your credit history does play a role in your insurance premiums, insurance companies do not necessarily use the same credit score that you see when you get your credit report. The credit score that insurance companies use is referred to as your insurance credit score, and the insurance companies calculate it on their own with their own formula.
- Your insurance credit score takes several factors into consideration. The biggest factor in your insurance score is your payment history, which makes up 40 percent of the total score. The second-biggest portion of your insurance score is the amount of debt that you currently have, which makes up 30 percent. The length of your credit history is also taken into consideration, making up 15 percent of your score. The insurance companies also look at the pursuit of new credit and the types of credit that you have.
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