People are often told that their credit score determines their insurance. But in reality, they do not understand how this happens. This article will examine how your credit score affects your insurance, how you can repair your credit, how long it takes to fix it, and other related issues.
What’s my credit score?
In the most simple terms, your credit score is a figure that predicts how quickly you would pay back a loan. The higher the score, the better your credit, and vice-versa. This figure is generated based on some factors. These factors include:
Your Payment History
Your payment history indicates how quickly you make payments. This factor contributes thirty-five percent of your credit score and is the most important factor. Other things that would be checked to determine your payment history include how often you miss payments, how many days elapse before you meet up on a payment missed, and how recently you missed a payment. If you do not default on any of these, you have a chance of having a higher credit score.
Your Current Debt
What you currently owe on loans and credit is another factor used to calculate your credit score. This contributes thirty percent to your credit score. This factor can be affected by
Your Credit History
This is a record of your credit activity. It contributes fifteen percent of your credit score. Your credit activity is checked to determine how quickly you repay your loans. If you do not have any credit history, it could affect your score negatively.
Account Types
The type of accounts you have also contribute ten percent to your credit score. If you have different account types like installment loans, home loans, and retail and credit cards, you are more likely to have a raised credit score.
Recent Credit Activity
This is the record of the credit activity you have been involved in recently. If you have been involved in a lot of credit activity recently, it can affect your account. This is dependent on the activities, though. Activities like paying off a loan could raise your credit score while opening accounts for loans could decrease your credit score.
All of these are brought together to form your credit score.
How Does Credit Score Affect My Insurance?
Your credit score is a prediction of how quickly you can make payments. If your score is low, you are more likely to file a claim. If this is the case, then your insurance would increase significantly. However, if your score is high, you are less likely to file a claim. This greatly reduces the amount you get to pay on insurance. Having a bad credit score does not automatically disqualify you from getting credit.
Is My Insurance Based Solely on my Credit Score?
While some might want you to believe that your insurance score is all that matters when it comes to your insurance, this is not always true. Whether you are getting auto or housing insurance, various other factors are considered along with your credit score to determine your fate regarding insurance and how much premium you are charged.
For example, factors like where you live to play a huge role in determining your auto insurance. If you live in Queens, you are likely to pay more on auto insurance when compared to places like Manhattan. This is because more accidents happen in Queens, so you are more likely to file for a claim if you live in Queens. So other factors are considered.
However, your credit score always stands out because it is the most important of them all. This is the reason it seems like only your credit score is considered. It is the most important and heavily influences any Verdict that would be made about your insurance.
How Do Insurance Companies Use My Credit Score?
When insurance companies check your credit score, they use it to perform two major actions.
Underwriting
Underwriting is a process that insurance companies carry out to decide whether or not they will offer you insurance. This means they are willing to take the risk involved in offering you insurance.
Rating
Rating is carried out when the insurance company weighs how great a credit score you have to determine how much you pay for insurance. The charging would vary from one insurer to the order. This is the process that leads to the determination of your insurance score.
What Is Good or Bad Credit?
Since your credit score is essential in determining your insurance, knowing what would be considered a good or bad credit score is germane.
Before we go into the figures, it is important to mention that different insurance companies rate your score with slight differences. However, the difference may not be by wide margins.
For most companies, anything below 500 is usually considered a bad credit score.
The category you fall in will determine your rating with the insurance company. From 300 to 579 is considered poor, while anything ranging from 800 to 850 is excellent.
If you have a good credit score, you can have a better insurance experience. If not, you might have to endure a more expensive insurance cost.
Insurance score Vs. Credit Score
Sometimes, people are unclear about the differences between their credit and insurance scores. While the credit score is based on your ability to repay what you borrowed, your insurance score predicts the possibility of you being involved in an accident or filing a claim in the future.
When comparing the two scores, it is essential to note that one is greater than the other, which is the credit score. This is because your credit score largely affects your insurance score, but your insurance score does not affect your credit score.
Your insurance score is calculated using factors like your DMV record, housing location, and credit score.
Factors That Affect Your Credit Score Negatively
Missed a credit card payment
As we discussed earlier, your payment history is one of the major factors influencing your credit score (up to thirty-five percent). So if you miss a payment, this could hurt your credit score terribly. This is important as lenders and issuers pay close attention to such information, indicating your risk level.
House eviction
House evictions are never great for many reasons, one being that they negatively impact your credit score. This doesn’t mean that the eviction notice will be indicated on your credit. What shows up is the amount that is collected. Sometimes people ask “how many points does an eviction drop your credit score.” Depending on the situation eviction could result in a whopping 100 points drop in credit score. What’s worse is it can stay that way for up to 7 years if it’s not removed.
Buying a car
Buying a car is great but could also adversely affect your credit score. People have had experiences where their credit score dropped 100 points after buying a car. This is due to a few factors. It’s possible you took a loan to fund your car purchase, which could affect your credit score. However, this should not stay for too long if your payments are regular.
Opening or closing a credit card
It’s not that simple to open or close a credit card, as it could affect your credit score negatively. In some instances, the credit score dropped 100 points after opening the credit card. These could be a result of a hard inquiry, maxing out credit cards quickly and missing payment.
Also, closing a credit card (especially the older one) could negatively affect your credit score as it lowers your credit limit.
Paid off a loan
While this is usually positive, it could sometimes be negative. This is true with installment debts like student loans or mortgages. Having a mix of credits helps, however if you don’t, it could negatively impact your credit score. However, this usually isn’t to a great degree, so it’s encouraged you keep up with your payment as it is also helping other aspects of your credit score.
Inaccurate Reports
Another thing that could affect your credit score is inaccurate reports. According to a study by the Federal Trade Commission, one in every five persons has an error on their credit reports. This is the minimal rate. If you have errors like this in your reports, then it would impact your credit score negatively
Improving Your Credit Score Will Improve Your Insurance Score
While other factors influence your insurance score, your credit score is paramount. This makes improving it a priority for anyone who wants better insurance ratings.
How To Improve Your Credit Score
There are different methods you can try to improve your credit score. They include
Professional Credit Repair Services
A professional credit repair service provider will help you inquire into your credit reports and help you repair your credit. This option is perfect if you do not have the patience to do it yourself.
However, it’s worth mentioning that these companies charge to help you with their services. Some even charge per error removed from your credit report. This could be expensive for the average person trying to fix their credit report.
Also, these companies do not allow you to have control of the process, as you can only do what they tell you. In the end, some of such services are scams that take more money from you without offering help.
Do It Yourself (DIY) Credit Repair
Another approach you can take is the DIY credit repair option. You can fix your credit using a DIY credit repair kit. While this is cheaper, it’s not always easy. There are aspects of Credit fixing that require the help of professionals. You might not be able to handle some of these aspects yourself.
Credit Repair Software
Another available alternative is using credit repair software. This software can be used alone or with the help of a professional. Most credit repair software charges a certain amount for you to use their software in repairing your credit.
However, there is free credit repair software that you can use to achieve the same thing. You do not need to spend a dime as these services are free. CreditUp club is a typical example of what excellent free credit repair software offers. The software CreditUp club offers acts as an advanced DIY credit repair software that can help locate errors and wipe your credit clean for free.
CreditUp club is also the best credit repair software for professionals and beginners, as it provides a tailored path that eases the strain of fixing the credit score. In essence, you get a mix of free DIY credit repair and free professional help in one software. This makes it the more effective method to use.
How long does credit repair take?
This is a popular question: how long does credit repair take? Credit repair is not an automatic process, regardless of the method used. People’s situations are unique and will take different times.
This is why it’s not good to get desperate about fixing your credit score, as it will make you fall for scams. You might see adverts online with lines like “we cure credit now, ” which are mostly impossible claims. Others ask how to get a 720 credit score in 6 months. While this might be possible for some people based on their existing credit score, nothing is set in stone. Fixing your credit score takes time, and it’s advisable to go through due process.
Conclusion
Improving your credit score is not impossible. A credit score repair can help fix your credit score. However, this will take time and deliberate effort to achieve. Suppose you are interested in using DIY credit repair software that makes the process easier and quicker. In that case, you can try CreditUp club and check out our different services. All you need to get started is a few minutes. In that time, you can begin a process that will impact your service score positively. Join us now!
