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What does my credit rating have to do with purchasing insurance?
Credit scores are
based on an analysis of an individual’s credit history. These scores
are used for many purposes such as securing a loan, finding a place to
live, getting a telephone and buying insurance. Insurers often generate
a numerical ranking based on a person’s credit history, known as an
“insurance score,” when underwriting and setting the rates for
insurance policies. Actuarial studies show that how a person manages
his or her financial affairs, which is what an insurance score
indicates, is a good predictor of insurance claims. Insurance scores
are used to help insurers differentiate between lower and higher
insurance risks and thus charge a premium equal to the risk they are
assuming. Statistically, people who have a poor insurance score are
more likely to file a claim.
As a result, establishing a solid credit history can cut your insurance
costs. To protect your credit standing, pay your bills on time, don’t
obtain more credit than you need, and keep the balances on your credit
cards as low as possible—ideally, try to pay off the bill in full each
month. Also, check your credit record regularly, and request that any
errors be corrected immediately so that your record remains accurate.
The Fair Credit Reporting Act (FCRA) requires each of the nationwide
consumer reporting companies—Equifax, Experian, and TransUnion—to
provide you with a free copy of your credit report, at your request,
once every 12 months.
Free annual credit reports can be ordered from AnnualCreditReport.com.
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