What is a Credit-Based Insurance Score?
A credit-based insurance score is a rating given by insurance companies to determine if someone is likely to file an insurance claim. Based on available credit information, it can be used during the underwriting process to determine the monthly premiums the insured will have to pay to get coverage. It is sometimes called the insurance score or insurance credit score.
Not every insurance company uses a credit-based insurance score during their underwriting process – not every state allows that – and even for the ones that do use it, it is one of many factors used to determine someone’s life insurance rating.
Your credit-based score traditionally is broken down by the following factors:
- Payment history
- Outstanding debt
- Credit history length
- Pursuit of new credit
- Credit mix
While many of these same factors determine your credit score, they are not the same thing; the weighted average differs between them Your credit-based insurance score is not based on personal information — in fact, raters aren’t allowed to use factors like your gender or marital status to determine this (although some of these factors can affect your insurance ratings).
Also, not every state allows insurance providers to use credit-based insurance scores. Some do, some only allow it for certain types of insurance (like car insurance) and some don’t allow it at all.
How to Raise Your Credit-Based Insurance Score
If you’re worried that a poor credit score may affect your ability to get affordable life insurance coverage, or you want to make sure you’re in good shape to apply for a no medical exam life insurance policy, there are many small steps you can take now to start boosting your credit standing.
Some tried-and-true methods include:
- Always make payments on time. Or, ask for help from your credit issuer if you can’t. Payment history is a huge part of any credit assessment. Paying your bills on time shows credit raters and insurers alike that you are at low risk for not making payments as agreed upon.
- Pay down debt. How much debt (such as credit card debt) you’re carrying versus your credit limit determines your credit utilization rate. Keeping this rate low is key to good credit. Making an extra payment or 2 within a certain time range (so long as it doesn’t cause you to miss other payments) can boost your score quickly.
- Track your credit regularly. Credit can seem intimidating, but keeping up to date on your score and which actions you can take to see improvements is the best way to keep your credit healthy.
- Don’t close accounts. This may seem counterintuitive, but don’t close your accounts if possible once you’ve paid your balance down to $0. Not only does the average length of time your accounts have been open help determine credit scores, but there’s also a sweet spot as far as how many creditors you have a relationship with. Having more relationships in good standing can be helpful, especially if you have low or no balance on these accounts.
Can You Be Denied Life Insurance Because of Credit?
This depends. As stated before, some states restrict insurers, or certain types of insurers, from using your credit score to determine your coverage eligibility. But other providers may deny you if you have a ton of outstanding debt, accounts in poor standing, or previous bankruptcies.
That being said, just because one insurer denies you doesn’t mean they all will. That’s why shopping around for quotes is so important. This will help you figure out your options and find the best price on your premium.