If you have a low credit score and are worried about how your insurance premiums will be affected, you may be happy to know that this score is not the only factor that potential insurers consider.
When determining the coverage rates for your insurance plans, insurers place a greater emphasis on your insurance risk score than your credit score.
You can use the information found on a copy of your credit report to get an idea of what your insurance risk score might be. Everyone is entitled to see their report.
Insurance Risk Score Overview
Although the insurance risk score is based on the same factors as the credit score, the former is determined according to how often payments are made while the latter is determined according to how much money is owed.
Insurers take the insurance risk score into consideration when determining premium amounts because people with high scores are considered to be financially savvy and at low risk for filing claims.
Your overall insurance risk score, which measures consistency in paying off debt, is measured after five major factors are considered. These factors are weighted differently and are listed as follows:
*The number of new credit accounts that you have opened for the first time, re-established, or inquired about is a minor part of the insurance risk score.
This factor accounts for roughly ten percent of the overall score. New accounts are weighed in proportion to existing credit accounts.
*The types of established credit accounts that you are maintaining also comprise one-tenth of the total insurance risk score. Insurers may look at your mortgage, credit cards and loans when measuring this part of the score.
*The duration period of established credit accounts carries a slightly higher weight in the determination of your insurance premiums.
Fifteen percent of your overall insurance risk score is based on the length of time that you have held credit accounts or other financial accounts.
*The amount of credit that you owe on all of your accounts factors into 30 percent of your overall score. Insurers examine factors such as the number, type and limits of your credit accounts.
*The history of your credit card payments accounts for 35 percent of the insurance risk score. Past payment history is important in regard to determining an insurance premium.
Some of the elements that are investigated when measuring past payment history include delinquencies, bankruptcies, collection claims and the timing and methods of bill payments.
To keep insurance premiums on your car or home low, strive to maintain a good insurance risk score as well as a good credit score. If you find yourself subjected to higher premiums, develop a financial plan for improving your scores.