September 06, 2023 · Budget, Credit, Insurance

How Credit Reports and Scores Can Affect the Cost of Your Insurance

In recognition of September being Life Insurance Awareness Month, Delta Community is raising awareness of the important relationship between credit reports, credit scores and how they work together to affect insurances costs. To explain this relationship requires some background information…

Many U.S. consumers have a personal credit history; an ongoing record of historical financial information created by their credit cards, financial accounts, loans, bill payments, home leasing or purchase—almost any financial activity that can be directly associated with them. This history indicates whether or not they pay their bills on time, how much debt they have and the number of credit accounts they have open.

The three major national credit reporting companies (also known as agencies or bureaus) in the United States Equifax®, Experian and TransUnion LLC, continuously collect this information to compile an individual’s personal credit report. The credit report could be considered a summary of monetary activities which gives someone a financial reputation. Other businesses (including financial services companies) then use this information to help determine if a consumer is a potential candidate for certain products and services. Besides financial services companies, many other types of businesses, government agencies, organizations or individuals might check details of a person’s credit history, including insurance companies.

A strong, positive credit report demonstrating consistent payment history and a manageable debt level is important because it affects buying or renting a place to live, purchasing or leasing a car, getting a loan or insurance, applying for a job or credit card and other activities dependent on personal credit trustworthiness.

Besides credit reports there is a credit score that is also important

Along with your credit report, your personal credit history creates a related piece of essential financial data known as a credit score. A credit score is a single number, within a numerical ranking from low to high that summarizes your entire credit history into an overall rating similar to poor, fair, good, very good and excellent. The actual number ranges usually start at 300 and go up to 850. The U.S. government agency the Consumer Financial Protection Bureau has a simple definition for this important number; it says that “a credit score is a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports.”

The major credit bureaus use different models to analyze your credit history data and then calculate a personal score, so your credit score will likely vary somewhat between the three bureaus. While your credit report may be long and detailed, just the single, simpler credit score number may be used by some businesses to predict how well you manage your money and debt. This means some companies may decide their willingness to engage with a consumer financially primarily by how high or low their credit score is.

Credit reports and scores can affect the cost of your insurance, since insurance companies use a credit-based insurance score to help price policies

So, what exactly is the connection between credit reports and scores and how they affect the cost of your insurance? The authoritative insurance industry research organization, the Insurance Information Institute (III), says “Insurance scores (also called “credit-based insurance scores”) are confidential numerical ratings based in whole or in part on a consumer's credit information. Many insurers use these scores in conjunction with other factors to help underwrite and price policies, typically for personal lines such as homeowners and personal automobile insurance.”

In its article on credit scoring, the III goes on to explain “it is important to note that insurance scores are not the same as credit scores. Credit scores predict credit delinquency whereas insurance scores predict insurance losses. Though both are based on a person’s credit report, an insurance score does not measure how much money a consumer makes; rather it serves to measure how well an individual manages their money.”

Credit-based insurance scores are used by insurers because they help predict how much of an insurance risk a consumer may be—how likely they are to file an insurance claim to be paid out by the insurance carrier, costing it money and affecting its revenues and profits. Insurers would prefer to have policyholders with strong, positive credit reports, higher credit-based insurance scores and lower risk profiles who are overall less likely to file claims against their policies. According to Allstate® Insurance Company, which is one of the ten largest insurers in the U.S., “most U.S. insurance companies use credit-based insurance scores along with your driving history, claims history and many other factors to establish eligibility for payment plans and to help determine insurance rates.”

Having a positive credit report and good credit score can save money for years

Without a strong, positive, credit-based insurance score, an insurance policy applicant may only be offered policies with higher premiums or a higher monthly rate to pay. To the insurer, the lower credit score of a potential policyholder means that they are an increased risk for making claims, and consequently they must pay more money to the insurance company to offset the likelihood of future claims on the policy. Having to pay higher premiums or rates could increase insurance costs hundreds of dollars a year for an indefinite number of years, either until a consumer’s reports and scores are more robust or, possibly, if the insurer determines that the consumer is less risky based on some other criteria.

Overall, having good credit is an important investment in time and effort, since it can save money throughout your life. Saving money by improving credit reports and scores—and shopping for the best rates—makes good financial sense. There are also actions you can take that could lower your current or future insurance costs.

By the way…did you know that besides its banking services, Delta Community also has a wholly owned subsidiary—Members Insurance Advisors—that offers insurance to Delta Community members?

Delta Community offers access to more than just banking products; it provides through its wholly owned subsidiary, Members Insurance Advisors, several types of insurance for the Credit Union’s members.*

Members Insurance Advisors’ agents use a consultative approach to understand members’ current and future needs to help them find the right type and amount of insurance coverage to protect themselves and their possessions at every stage of their lives. Rather than relying on the policies offered by just one insurance company, Members Insurance Advisors’ agents research and compare multiple A-rated insurance carriers to find the best quote for the appropriate coverage tailored to a member’s unique lifestyle and situation.

Delta Community members can consider the benefits of a range of the most common types of coverage, including:

We have more information on managing credit reports, credit scores and managing your money

For more information to help you manage your finances, look into the free Delta Community Financial Education Center webinars on a range of practical, “how to” topics to potentially save you money and enable you to better manage your income, financial assets and life. Please visit the Financial Education Center's Events & Seminars page to review and register for monthly on-demand webinars.

The Credit Union’s blog has more educational and helpful information:

Offering more BALANCE™ for Delta Community members

BALANCE™ is a financial education and counseling organization that offers free services to Delta Community members. Some of its services include credit report reviews, debt management and information on budgeting, money management and home buying.

Visit the BALANCE™ website to learn about their education and assistance programs. Members can also speak with certified credit and housing counselors to get personalized guidance.

Want to connect with a Financial Coach about your specific situation? Chat online, e-mail, or call 1-888-456-2227 to speak with a Financial Coach today.

Note that the services offered through BALANCE™ are separate and distinct from any business conducted with Delta Community and are not guaranteed by, nor are they obligations of, the Credit Union.

* Insurance products available through Members Insurance Advisors are not deposits of Delta Community Credit Union and are not protected by the NCUA. They are not an obligation of or guaranteed by Delta Community Credit Union and may be subject to risk. Any insurance required as a condition of an extension of credit by Delta Community Credit Union need not be purchased from Members Insurance Advisors and may be purchased from an agent or an insurance company of the Member's choice. Business conducted with Members Insurance Advisors is separate and distinct from any business conducted with Delta Community Credit Union.