Insurance companies set up prices for premiums based on the risk factors of each of their customers. This is why different customers have different insurance rates, even if they use identical insurance policies. Many insurers collect information about your credit score in order to price their premiums. Many types of insurance, including the most popular Auto Insurance and Home Insurance policies are affected by your credit score.
Consequently, the better your credit score is, the lower will be your insurance premiums. Review of the credit score for determining individual risks has also proved useful in analyzing the likelihood of individual filing a claim. Bad credit record also tells insurers that an individual is not good in taking care of his finances, which leads them to conclusion about the person being irresponsible in other areas of life. A person with a high-risk profile will have higher insurance premiums compared to those with low-risk profiles, and in some cases the difference is significant.
Your payment history and your existing debt are the two main factors taken into account from your credit history. Insurance providers consider favorable such factors as no late payments, long-standing credit history, low credit utilization, and credit in good standing. The unfavorable factors include using too much credit, making late payments, or having accounts in collections or bankruptcy.