Numerous studies since the 1990’s have shown a relationship between the probability of a loss or claim and a person’s credit score. In general, individuals with higher credit scores will have fewer and smaller claims than individuals with a lower credit score. This applies to auto and homeowners insurance. As a result, insurance companies use information from a person’s credit information to create an Insurance Score or Risk Score. This score is an indicator of how much risk a person represents to an insurance carrier. This information is coupled with other factors to determine how much premium an insurance company will charge a particular individual. For auto insurance, other factors might be accidents and citations, where you live etc.

There is a relationship between credit and risk scores. People with better credit scores will have better risk scores. So, if you improve your credit score, you will improve your risk score and thus reduce your auto and home premiums.

So how do I improve my Credit / Risk score? These are some possibilities: (Note: This is a link to Experian on how to improve your risk score. )

First of all, there are three major credit bureaus:

• Experian
• Equifax
• TransUnion

1. You can request a credit report from each credit bureau. They sometimes contain different information. Look them over carefully to make sure they are accurate. Inaccurate information may creep in and negatively impact your score. Contact the Credit bureau to get inaccurate information corrected.
2. Pay our bills on time. Don’t be late or delinquent. Meet your obligations. This requires good money management skills. Taking a class in money management might be helpful.
3. Don’t settle a bill or debt for less than you owe. This creates a negative impact on your credit.
4. Pay off debt and keep balances low on credit cards. High credit card balances will negatively affect your credit utilization ratio which will lower your score. Again, this is part of good money management. Live within your means. If you need more money to balance your account, a second or better job may be required. Or some education or a trade. Or start a business.
5. Be careful about opening new credit card accounts just because a store offers 10% of today’s purchase. Obtain only as many credit cards as you need, not too many.
6. Every time you apply for a loan or credit card, you get a “Hit” on your credit. These are called Hard Inquiries and they negatively impact your credit for up to 2 years.

How much time does it take to improve your credit score. First of all start today to improve it by working on the steps above. Remember, some things will have a negative impact for a long time.

• Late payments and other payment issues can negatively impact your credit for 7 years.
• Public records issues such as bankruptcy or judgements from lawsuits can remain on your record for 7 to 10 years.
• Hard inquires only stay on your record for 2 years. Their negative impact will also diminish over time.

If you have a low credit score, start improving it today. A higher score will positively impact many aspects of your life. Including your auto and homeowners insurance premiums.

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