A C.L.U.E. About Insurance Rates and Credit

It’s common knowledge that lenders use your credit reports and credit scores to measure your creditworthiness before approving you for a loan – or determining your interest rate.

But you might be surprised to know…

Your credit reports can also drive the cost of your car insurance premiums. And if you think the rates on your homeowner’s insurance are solely determined by your prior claims, having smoke detectors or an alarm system – you may be in for an unwelcome surprise.

Much like the credit industry, insurers calculate an “insurance score” on you.

Your insurance score is based on both your claims history and your credit report history. Not only do they consider past vehicle or property claims detailed in your C.L.U.E. reports (Coverage Loss Underwriting Exchange), they also analyze data from your credit reports to help predict your risk level and assign rates for your auto and home insurance.

Keep in mind that an insurance score is not the same thing as a credit score.

While both are based on information in your credit reports, credit scores help lenders predict how likely you are to repay debt; an insurance score helps insurance companies predict how likely you are to file claims, as well as how often – and how costly those claims could be to their bottom line.

Certain factors, such as payment history and outstanding debt, also figure heavily into your insurance score, just like your credit score. However, non-credit factors may also be evaluated, including age, gender, geographic location, driving record (auto insurance) or property value (home insurance).

Insurance scores range from 150 to 950; credit scores typically range from 300 to 850.

In general, a higher credit score can mean a higher insurance score – and a higher insurance score can get you a lower insurance rate.

Tips to help protect your credit and insurance scores:

  • Pay creditors on time. If you are behind on your payments, catch up and stay current.
  • Don’t open (or close) a lot of credit cards at once.
  • Keep your credit card balances as low as possible, with a goal of less than 30% of your limit.
  • Monitor your credit reports from TransUnion®, Equifax® and Experian® for discrepancies and inaccurate information.
  • File a dispute to correct errors on your credit reports that could damage your credit scores.
  • Request a copy of your C.L.U.E. Auto and Personal Property reports to review every year.

If you suspect you may be paying higher insurance premiums than you should, monitor your credit scores and reports – and get a C.L.U.E.!

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