Looking to lower your insurance premiums? Here’s how smart credit management can help

September 30th, 2015 by admin

If you have ever applied for a mortgage, you know the importance of a healthy credit rating. While you may have known that having good credit could help you secure the ideal mortgage, what many first-time home buyers don't realize is that they can leverage good credit to help them insure their home, too.

Home insurance providers use your credit report as part of their formula for assessing the risk you pose as a policyholder. Because their models show that consumers with good credit are much less likely to file claims, you may be able to turn your credit score into cash by qualifying for a lower insurance premium. If your credit score is less than stellar, it can be difficult to bring up in a hurry, as credit reports account for years of past behavior. If you use a credit card, however, there are a few best practices you can employ that might give your credit rating the slight lift you need to qualify for a lower insurance payment. 

If you don't already have one, apply for a credit card. A credit card can be a useful tool for showing lenders you are a smart borrower. If you don't charge too much and pay all of your bills on time, your credit score will reflect your financial responsibility. Another indicator of low financial risk is having a healthy credit utilization ratio. This value indicates how much of your credit limit you spend each month. Even if you pay every month's bill on time, spending too close to your allowance can give the impression that you're a frivolous spender, so you should keep your utilization ratio at least under 30 percent if possible. 

Another factor your credit rating takes into account is how many credit cards you have with open balances. Even if their balances are relatively low, having too many cards with outstanding balances can hurt your score. Ideally, you should pay your extra cards off completely and focus on one or two cards for everyday use.

Consistently keeping these tips in mind can help improve your credit over time, which could qualify you for lower insurance premiums than you are currently paying. For more information about how your credit rating could affect your specific insurance plan, contact Fundy Mutual to speak with one of our qualified home insurance brokers today.