Many business owners are unaware that their business insurance premiums can be significantly influenced by their credit reports. This often-overlooked factor can play a crucial role in determining your insurance costs. 

Statistics reveal that individuals with high credit scores tend to file fewer insurance claims compared to those with lower scores. They are also less likely to experience traffic accidents and violations. Additionally, a credit report provides a history that can indicate whether a business will consistently pay its insurance premiums on time.

Because of these correlations, federal law allows insurance companies to review specific items from your credit report. Interestingly, business insurance companies are not required to notify you when they use your credit report in their assessments, so many business owners may not even realize this practice is occurring.

Understanding Your Insurance Credit Score

Business insurance rates are determined based on a select set of information from your credit report, known collectively as your "insurance credit score." This score is distinct from the FICO score used by banks and mortgage companies, although it often follows a similar trend. If your FICO score is high, your insurance credit score is likely to be high as well.

Your insurance credit score includes factors such as:

  • The pattern of your monthly bill payments
  • Collection activity
  • The total number of outstanding loans
  • The total number of credit cards

If you’ve missed credit card payments or defaulted on debts, insurers may view your business as a higher risk. Significant issues, such as bankruptcy, can severely impact your insurance credit score, leading to higher insurance rates. However, once a bankruptcy is discharged and eventually drops off your credit report (usually after seven years), your rates may be adjusted accordingly.

What Your Insurance Credit Score Does Not Include

It's important to note that not all credit-related information affects your business insurance rates. Insurance companies cannot use:

  • The amount of credit available
  • The number of credit inquiries
  • Lack of credit history to develop a score
  • The types or issuers of your credit cards and debit cards

By law, your business insurance rates cannot increase if you do not have enough credit history to calculate a score.

Inspecting and Improving Your Insurance Credit Score

To get a glimpse of your insurance credit score, consider obtaining a report. Reviewing your credit report is crucial to ensure all the information is correct. Inaccuracies can be disputed and corrected, potentially leading to better insurance rates.

When you apply for business insurance, your rates are determined by your insurance credit score, which focuses on specific aspects of your credit history relevant to the insurance industry. Some of the key items considered include:

  • The number of credit cards your company holds
  • The amount of outstanding loans and other debts
  • Your company’s timeliness in paying monthly bills
  • Any collection activities
  • The length of your credit history

Maintaining a strong credit score is not only essential for securing loans but also for obtaining favorable business insurance rates. Regularly reviewing your insurance credit report and ensuring its accuracy can help you get the best possible rates for your business insurance. Stay informed and proactive about your financial health to keep your business protected and thriving.

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