Most people realize that having a good credit rating can make certain aspects of your life a little bit easier. Typically, we wonder how good our credit is when we are considering taking out a loan, or applying for a job. Did you know that your credit rating can affect the cost of your insurance premiums? It can!
According to the Federal Trade Commission, insurance companies are among the businesses that will want to know your credit rating. One of the factors that they consider when determining what to charge you for your premiums is how good, or how bad, your credit rating is. The better your credit rating, the lower the cost of your premiums. Those with bad credit could end up being charged a higher premium.
The reason for this is simple. Insurance companies want to know how big of a risk you are before they agree to cover you. Ideally, insurers will want to find customers that are low risk. These are the customers who are less likely to have a need to file an insurance claim so they are less costly to the insurers. If you look like a high risk, the insurer is going to charge you a higher premium. This is to compensate for the money the insurer believes you will cause him to pay out on claims.
Most auto insurance companies will use your credit rating as one of the factors that they use to determine your premium. Credit-based insurance scores do not take into account things like your job, your income history, your gender, or other personal information.
Some states do not allow car insurance companies to consider your credit rating. If you live in California, Hawaii, or Massachusetts, then your auto insurance company is not allowed to use your credit score as a basis for the cost of your premium.
Homeowners insurance companies also want to know your credit rating. Again, it is all about risk management. People who have good credit ratings are usually more financially responsible than are people who have low, or bad, credit ratings. Insurers see people with bad credit ratings as a higher risk, so they will charge them a higher premium.
Health insurance works in the opposite way. People who are uninsured are going to have to find a way to pay all of their medical bills out of pocket. This tends to lead to a lot of medical debt, especially if a person has a hospital stay, has a baby, or has a serious illness. Medical debt can result in a lowered credit score (especially if you pay those bills late).
People who have health insurance coverage will have at least some of their medical bills paid for by their health insurance company. While it is possible to have health insurance coverage and still end up with some medical debt, it will probably be more manageable than if you had no coverage at all.
Therefore, having health insurance could help prevent your credit rating from dropping due to unpaid medical bills. People with good credit ratings are more likely to be offered a lower premium payment on their auto insurance and homeowners insurance policies.