How Credit Score Affects Insurance Rates And Approval

A credit score is a crucial figure in the financial world. It more or less depicts your credit worthiness. In turn, your credit worthiness determines whether or not you’ll get financial assistance, including the interest rates you’ll pay. Most credit scores range from 300 to 850, although others go as high as 950. A 300 to 580 credit score is poor, 580 to 669 is fair, 670 to 739 is good, and a score above 740 is considered excellent. It’s always advisable to maintain a high credit score.

It’s good to point out that most people only know that their credit score affects loan processing. However, this isn’t the case. Today, most insurance companies use the credit score to determine your risk factor before deciding the premiums you’ll pay. This figure also helps them to assess the possibility of them undergoing losses with you as their client. They won’t directly use the credit score. Instead, they’ll use it to calculate the credit-based insurance score.

Just like the credit score, the credit-based insurance score has ratings that often range from 200 to 997. A score of less than 500 depicts poor, 501 to 625 fair, and 626 to 775 good, with a score greater than 776 excellent. For both scores, the higher your score, the better placed you are to get favorable terms.

As a party looking to get insurance cover, are you wondering how your bad credit loans affect the rates you’ll pay and whether you’ll get approval? This article will help you understand the correlation by basing the discussion on the aspects of your credit score that impact this decision. Read on for the insight!

Your credit score impacts your insurance rates under the following aspects:

1. Amount Of Debt

As they say, not all debt is bad debt. Good debt is one you can easily pay, while bad debt is one you struggle to pay. In most cases, having many debts translates to bad debt. With the baggage, you’ll often wonder which one to pay for and which not to pay for. It means there’s a high likelihood of you defaulting on one or two, which isn’t a good picture for insurers.

Your credit balances are also part of the debt insurers will use to determine your number of debts. The credit balance is the amount you must pay to clear your credit card debt.

Insurance companies will ask themselves, with all the debt, how’ll you manage to pay your premiums on time? It puts you in the high-risk category, translating to you paying high premiums for your insurance coverage.

2. Length Of Credit History

The number of years you’ve had credit impacts your credit score by 15% and your credit-based insurance score. How?

Many years of credit can show you’ve more or less learned how to manage your finances, including your debt. Therefore, you’re less likely to default on your financial obligations. It is a positive sign for insurance providers.

The providers will see you less as a risk. They’ll believe you’re responsible enough to know how you’ll effectively make your premium payments. With this, you’ll most likely get low premium payments.

It’s good to point out that insurance companies also gauge how likely you are to make claims. With them portraying you as a responsible client, they’re highly likely to believe you’re less likely to get into accidents if you seek auto-insurance coverage. You aren’t a high-risk client with fewer claims to make, resulting in low premiums.

3. Payment History

Your payment history dictates how you handle your debt and finances. This aspect applies to both your debt and daily utilities. If you have a mortgage or student loan, do you make regular payments to offset it, or do you make delayed payments? When it comes to rent and utility bills, do you make payments on time? If the answer is no, the data will negatively impact your credit score. Your payment history has a 40% impact on your credit score.

Late and default payments make insurers see you as high risk. They’ll assume you’ll also carry the same habit to your insurance cover. You’re likely to make late premium payments or even default on them. Insurance providers will charge you high premiums to safeguard themselves against this possibility.


The discussion above has discussed how your credit score affects insurance rates and approval. With this information, you can better gauge where you lie regarding getting credit. If you have a poor credit score, all hope isn’t lost. You can improve your score; make the internet your friend to discover how to do this.

It’s good to point out that your insurance provider will use your credit score as part of the basis of consideration. Other aspects also contribute to their decision-making. Therefore, don’t worry too much. Also, not all states allow insurance providers to use your credit score to determine your insurance rates and approval. Do your due diligence and find out if your state is among them; it’s better to be informed.

Sandra Johnson

Sandra Johnson

Sandra Johnson was a few years out of school and took a job as a life insurance agent in California, selling coverage door-to-door for Prudential. The experience taught her about the technical components of insurance and its benefits for individuals and society, as well as the misunderstandings people often have about insurance. She has over ten years’ experience in the insurance industry, having worked as both a Broker and Underwriter, assisting clients across a broad range of industries. At Insurance Noon, Sarah diligently gathers all the required information and curates up pieces to provide meaningful insurance solutions. Her personal value proposition is to demonstrate a genuine interest in always adding value for clients.Her determined approach to guiding clients has turned her into a platinum adviser to multiple insurers.

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