Why Does My Credit Score Affect My Insurance Premiums?

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Why Does My Credit Score Affect My Insurance Premiums

It has been several years now that insurance companies have incorporated an individuals credit rating to assess their risk and calculate insurance premiums. According to the Cooperators (one of the first companies to implement this), an individuals “Credit score is simply a reflection of a person’s level of responsibility and behaviour when it comes to managing their financial obligations.” Based on an individuals credit score, insurance companies will calculate their risk and if you have a high credit rating, your home or car insurance premiums will be lower than someone with a low credit rating.

While many disagree with this move, it highlights the importance for us to maintain a healthy credit rating for all intensive purposes. Even though the criteria that lending institutions use is different than insurance companies differ, the steps that someone can take to maintain a good credit rating does not change. Here are just a few ways that you can save on your car or home insurance premium by maintaining a healthy credit score:

  1. Pay your bills on time

    One of the easiest steps to take to maintain your credit score is to pay your bills on time. Even the smallest of fines could end up on your credit report and count against your score.

  2. Keep your credit card balances low

    The higher the balance on your credit card, the lower your credit rating will be. It is recommended that you have not more than three credit cards and ensure that your credit card balance is always within 30%of your limit. The same rule of thumb applies for loans and an other form of debt. Ensure that the are kept at a minimum and your score will not be affected.

  3. Do not close old credit cards

    A large part of your credit score is calculated based on the length of time that you have held that card for. The longer you have held a credit card with a healthy balance, the better your credit score will be.

  4. It is also important to check your credit score once a year to ensure its full accuracy.

It is also important not to apply for an form of credit or loan to often.

These are just some quick ways that you can maintain a health credit score. This can help ensure that you keep your home and car insurance premiums in Toronto to a minimum.

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