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Credit Score News, Tips & Advice « Credit Scores > Credit Score Advice > Credit score is not only for loans, but insurance as well

Credit score is not only for loans, but insurance as well

By George Hauser
Published: Thursday, September 10th, 2009

One of the very first things you should know when you decide to get into the world of credit is the thing called credit score and its implications on your financial life. To begin with, your credit score is the numerical summary of the information in your credit report. One credit score advice is to always keep it high. When you have bad information on your credit report, you will get a lower credit score, so it’s important to keep your report clean.

Through a mathematical equation, the information on your credit report is turned into a three digit number. This number, your credit score, becomes the basis for lenders, creditors and other businesses in deciding whether or not to approve your loan application and even the interest rate. The most commonly used credit score is FICO which is developed by Fair Isaac company ranges from 300 to 850.

Most people think that credit scores are only important in making a loan or in applying for a credit card. But, the implications of a low credit score goes beyond loan.

True enough, you can get better interest rates if you have a high credit score. Because it represents how well you can keep up with payments, creditors would have a sense of security lending you the money you need. In contrast to this, poor credit report will pull your credit score down. A credit score advice, get to know what your credit score has impact on other than getting a loan.

Many insurance companies use your credit score to decide on what premium you’ll get. The most common insurances that use credit scores are auto insurance, homeowner’s insurance, and renter’s insurance. They use the credit score as a basis on how much coverage you should pay. As a credit score advice, this should be more reason for you to keep your credit score high so you pay less for insurance.

There is logic in how the two things, credit score and insurance, connect. According to most insurance companies, the credit history has something to do with the possibility of filing a claim. They believe that people having low credit score are more likely to file claims. Unfortunately, a huge part of insurance rates boils down to how well you can pay your credits. That means that even if you have stayed with the insurance company for the longest time, or have clean records in filing claims, if your credit score tells them that you are have missed credit payments, there’s greater chance you’ll have higher insurance rates.

Criticisms have struck this kind of system insurance provider’s use. For one, it discriminates on young people and minorities. Also, many have questioned the reliability of credit scores as a measure of one’s insurability. They say that such practice is an excuse for insurance providers to pick and only provide for those who are more financially attractive. How about those who have low incomes?

Other than that, credit score advice would be to keep even your state information clean because insurance companies include such in the specific credit score they use. This is in contrast with what banks use. However, in filing insurance, remember that the Fair Credit Reporting Act states that your insurance provider must notify you whenever they use your credit score, and why you are given the rate you have.

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