How Does Credit Affect Your Insurance Price?

Wait, credit affects how much I pay for insurance?

Amazingly, a lot of people don’t know this.  But if you start to think about it, it makes a lot of sense.

Credit, and by this I of course mean your credit score, makes a big difference in a ton of things in your life.  I could go on but this isn’t a financial literacy blog.

I’m no Dave Ramsey.  Though I do have better hair.

Sorry, Dave.

Regardless of follicular superiority, credit does indeed help your insurance costs.  Let’s go over the ways that good credit can save you a bundle.

Credit determines the kind of auto policy you can get.

A lot of people aren’t aware that insurance companies break customers into one of two camps: Preferred and Standard.  There is nothing wrong with being standard – it literally means you’re like most people.   But preferred customers get better rates, and therefore pay less for insurance.

People are usually put into one category or another because of their driving history.  If you have lots of accidents, you are probably going to have more accidents, so you’re put in Standard.

If you have no accidents or tickets, you’ve got a great chance of being put in preferred.

Credit is the other huge factor in determining where you go.  If you have great credit, you’ve got a good shot at Preferred.  Bad credit?  Nearly no chance.

If you combine the two you see the real power.  A good score and a great driving record gets you into Preferred and gives you the best rates a company will offer.

For your auto policy, this is crucial.  The kind of credit you have can drastically affect how much you pay every month (or every year if you get that sweet paid-in-full discount).

NOTE: Most companies do not call their groups Preferred and Standard.  Each company has its own name for their version of Preferred or Standard, so don’t be surprised if you can’t find that kind of language anywhere on your policy.

What if you don’t have credit because you live off the grid?

It helps you get great homeowner rates.

Just like auto insurance, insurance companies split up their customers into different groups for homeowners insurance, too.  But it’s a little more complicated than just Preferred and Standard.

Most companies have at least two groups for homeowners.  Some have three or four – or seven.  The point is that there are other factors besides just “Average” and “Above Average” that goes into determining where you’re put.

But the same rule applies.  If you have good credit, you’re put in one of the better groups.

Couple this with a great claims history, a house in a safe place that is at least a couple of hundred miles from the ocean, and you’ve got a great chance of getting into the best group possible.

A good score can lead to other benefits in homeowners insurance besides just good rates.  You can also qualify for better policy types as I describe in our Ultimate Guide to Homeowners Insurance.

This can have a big impact on your coverages, providing better base protection and giving you more coverage on things like jewelry, firearms, and electronics.

So the formula is simple. Good Credit = Good Homeowner Group = Good Rates.

You’ll be strutting your stuff knowing how good you really are when you see your quote with that awesome credit score you’ve earned.

I’ve got good credit.  So what do I do about it?

Most people do nothing.  They assume that their insurance is good because, let’s face it, who wants to talk about insurance if they don’t have to?

But if you notice your credit score going up, and you haven’t talked about insurance in a while with someone, you’re missing a huge opportunity.

Having good credit means that companies now WANT you to be their customer.  Just like as I talked about how loyalty is important in my blog and video on Package Policies (also called Bundles), good credit makes you a valuable commodity to insurance companies.

But why?

Well, think about it.  Why do mortgage companies give people with good credit better rates?  Why do banks want to loan you money?  Why do you get 1.5 Million credit card offers a week?

Because people with good credit are reliable.  They pay what they owe.  They aren’t late with payments.  They have a history of financial responsibility.

And, it turns out, they are less likely to have claims.  Insurance companies are math driven.  They’ve done their homework, and they’ve discovered that not only are people with good credit more likely to pay their bills and be on time, they are less likely to get involved in an auto accident or have their house burn down.

Crucially, it also means if they do have an accident, they can be trusted and the money they are given will go straight to fixing the problem.

Put simply, people with good credit are great customers.  Period.

Admit it. This is you checking your credit score right now.

Am I getting the best deal with my credit?

That’s the big question, isn’t it?

When is the last time you go a new quote from your agent?  Or have you talked about your new credit score in your annual insurance review?

To be honest, you probably haven’t.  And you could be leaving money on the table as a result.

If you’ve got good credit, and you haven’t had a new review of your insurance in a while, talk to Alliance.  We can look over your policies and run some numbers that include your awesome credit score, making sure you get the best rates possible.

NOTE: When we check your score, it is a soft hit.  It will not negatively affect your score!

So fill out the very quick form below.  It will take you six seconds.  And you’ve earned it.