A credit-based insurance score could cost or save you money. Ever heard of it? In short, it’s a special score that an insurance company gives you or your business based on information it digs up in your credit file that determines what premium you’ll pay and in some cases whether you get the insurance at all.
Credit scores and insurance scores are not the same thing. Not knowing the difference can cost you and your business money. Both are derived from the same data, but are intended to predict different things. Credit-risk scores aim to predict the likelihood you’ll default on a loan or other credit. Insurance scores, however, are built to predict whether you are likely to file more (or less) claims with the insurance company than the average customer.
More and more insurance companies are now using credit-based scoring to screen customers and set rates. All of the 15 largest auto insurance companies in the U.S. now use it. Even if your business has a good claims history, you could end up paying higher rates – or could be turned down for coverage elsewhere – if the insurance company doesn’t like what it sees in your credit file.
For business owners with good credit, however, credit-based insurance scoring can be good news. “Good credit can also reduce insurance premiums, since many insurers offer good credit discounts,” says Loretta Worters, vice president of the Insurance Information Institute. A study in Oregon, for example, showed that auto insurance policyholders with a good credit-based insurance score paid as much as 48 percent less for coverage.
Ask your insurance company or agent if you are getting the best rate and terms available. If you aren’t, find out why: It could be due to a poor insurance score. If you are denied coverage or offered a higher rate, consider reapplying after your credit picture improves. The simple step of paying all your bills on time is your best defense against trouble caused by a low credit-based insurance score. Find out more about insurance scoring.
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About the Author: Daniel Kehrer, Founder and Chief Content Officer of BizBest Media, is a senior-level leader in digital media, content development and online marketing with special expertise in startups, SMB, social media and generating traffic, engagement and leads. He holds an MBA from UCLA/Anderson and is a passionate entrepreneur (started 4 businesses), syndicated columnist, blogger, thought leader and author of 7 business and financial books.