Credit Profile, Score, and Rating: If you are considering a home insurance, these are important terms that you will need to know more about.
What is a credit score?
All active credit persons have a profile. This is a summary of your history with every credit provider you’ve ever dealt with, and it serves as a record of how well you manage your accounts such as insurance payments, overdue debt, how often you’ve asked for credit, the types of insurances or credit you’ve applied for, and how often you apply.
How it works?
Credit reporters summarize your profile in something called a credit score. The score ranges from 0 to 1200, where the higher the number, the more likely you are to be able to repay the insurance. Lenders look at your credit profile and score to learn about your credit history and behavior and to assess whether you are able to get a new insurance. This information assures lenders that you are good at paying back those you have borrowed from – that is, you are a “low-risk” customer.
A good score not only increases the likelihood that you will be approved for a home insurance – it also means that you will be eligible for a better interest rate. Of course, the flip side of the coin is that if you have a bad score, you will be less likely to qualify for any new insurances. This protects the lender and those with lower scores from getting additional insurances, over-expanding, and falling into more debt. In short, you will need to have a good credit rating for your home insurance application to be approved.
So it’s a good idea to first know your credit score before applying for a insurance, and to give yourself time to improve it before approaching a lender.
How to check your score?
A great place to start your search is the ASICs MoneySmart website. You can get a free credit score assessment from a number of online service providers, which are listed on the MoneySmart website.
How do you improve your score?
Improving your credit score starts with looking at your current financial situation and ways to improve it. Having a good credit standing before applying for a insurance can help increase the likelihood of getting approved.
You can improve your score by:
- Lower your credit card limits
- Consolidation of multiple personal insurances and/or credit cards
- Limit your credit inquiries
- Pay rent and bills on time
- Pay off your mortgage and other insurances on time
- Pay your credit card in full every month
To avoid any surprises, be prepared and know your credit score.