Most people know that their credit score can affect their ability to get credit in the future, but many do not know that their credit score and credit history are also used by auto and home insurance companies to set rates.
Most states let insurance companies for homes and cars use credit information to figure out how much to charge for premiums. Obviously, if you have some bad marks on your credit history, you may end up paying more for your coverage. Even worse, the Supreme Court of the United States ruled this year that insurance companies do not have to tell you that your credit history is why they are charging you more.
In short, the court ruled unanimously that insurance companies did not do anything wrong when they charged customers with bad credit more in premiums without telling them.
This means that people with low credit scores won't know that it's because of their credit history that they have to pay more. This is why it's important for consumers to check their reports often and make changes when they need to.
It would be nice if customers could just ask their home or car insurance company to explain how they set rates, but they probably won't. Most companies don't tell anyone about this. Ninety percent of home and auto insurance companies do use credit history when figuring out rates. This is not a big secret. Some companies give credit problems a lot of weight, while others don't.
One way to try to avoid this is to raise your credit score as often as you can. Here are a few ways to do that.
Don't be late with your bills. If you don't pay your bills on time, it goes on your credit report, and it stays there for seven years.
Try to pay down your revolving balances. Insurance companies for your home and car look at how much debt you have and how much credit you have available.
Keep the oldest credit card you have open at all times. All insurance companies like to work with people who have good credit lines that have been open for a long time.
You might not know this, but sending in applications for credit cards can actually hurt your score. So, don't try to get more than one line of credit at the same time.
Try to keep the number of open credit cards to a minimum. Keep the one you use most open, but close the ones you don't. Your score can go down if you have too many credit cards.
If you know you have some bad marks on your credit report and your rates have gone up, you may have no choice but to look for a new policy. You might want to do this because there is no hard and fast rule about how high rates for people with bad credit must be. As we've already said, one company may not charge you nearly as much as another. You can only find out by shopping.
