Credit Problems and Insurance

Your credit report is not just used by lenders and credit companies. Insurance companies often consult your credit report and use your credit history to determine whether or not they will sell you a policy, and if so what the rate will be for your premium.

Insurance is based on risk assessment, and credit has become an important factor in determining your risk as a driver or a homeowner. If you have credit debt, a tarnished credit record, or no established credit, you may be considered likely to file a claim against your insurance policy. Depending on your insurance agency and the characteristics of your credit history, this can be a big factor in calculating your rates.

While some people feel that using credit discriminates against people who otherwise present little insurance risk, such as safe drivers, victims of identity theft, or people who have previously dealt with unemployment, it is still a factor considered by more and more insurance providers.

If an insurance company denies you coverage or gives you a high cost premium because of your credit rating, they are required by the Fair Credit Reporting Act to let you know specifically what information led to their determination of your risk. You can obtain a free copy of your credit report and can contest information that you feel is inaccurate or misrepresented.

To avoid being turned down because of credit, there are several steps you can take. Often it is not bad credit, but simply a lack of established credit that prevents people from obtaining auto or homeowner's insurance. By using your credit card regularly and always making your monthly payments, you can establish a strong line of credit.

It is helpful to obtain a copy of your credit report on a regular basis. This will allow you to see where you stand and to make sure that you are on the right track to having a strong credit history. Regularly reviewing a copy of your credit report will also allow you to make sure that there are no mistakes, both on the part of the creditors and on the part of the credit bureaus.

When purchasing an insurance policy, gather the rates from multiple companies. By shopping around you will be able to find the best rate given your circumstances. Insurers emphasize different factors in determining your risk, and you may be penalized or reward for your credit history to different degrees depending on the company providing you with your policy. It is always good to know whether or not your state regulates how insurance companies use your credit to calculate your premium or if they will offer you a policy at all.

While the best way to prevent suffering from credit problems is to establish a good history, there are many ways you can help make the most of your credit rating when applying for insurance. By following these guidelines, you will be able to obtain the affordable insurance you desire.

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©2004 The Lawrence Marketing Group

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