illustration of relationship between credit score and policy cost

How My Business Credit Score Impacts My Insurance Rates

Depending on the type of business you run, you’ll likely have to buy insurance. Whether you need auto insurance for fleet vehicles, workers’ compensation plans, or property coverage for your storefront and inventory, there’s a factor in getting a good deal that many aren’t aware of: your credit score.

Almost everyone knows that a good credit score can get you low rates on small business loans and higher corporate charge card limits. Did you know that it also affects what you pay for various types of business insurance? While it may not seem connected, or fair, there’s a very tight relationship between your past money choices and what your insurance company charges you to keep your business protected. After all, the insurance industry is all about evaluating risk, and it looks at a lot of factors and history to determine your risk. Here’s a bit more about why insurance companies do this and how you can get the best value for your next insurance policy.

Factors in Determining Insurance Premium Costs

You may have heard the rumor that red cars are charged higher insurance premiums because they are assumed to be driven faster. While no insurance companies will come out and say that your paint hue affects pricing directly, your behavior (including how you drive your business vehicles) will definitely influence the price.

Depending on the type of insurance you are looking at buying, anything that is considered a risk factor is fair game to affect the price of your policy. These include:
  • Driving experience
  • Age
  • Driving record
  • Insurance claim history
  • Location
  • Type of business
  • Value of goods or services being sold
  • Your employee’s role in the company
  • The amount of coverage you need
  • The deductible you want to pay
  • The premiums you can afford
  • Credit history
Notice that last item: credit. What does credit have to do with your risk as an insured? According to many insurance companies, it can be a big clue to how many future claims you will make. For businesses, this may include your personal credit (for a sole proprietorship) or your business credit.

What Is a Credit-Based Insurance Score?

Premiums can be decided, in part, by the information provided to insurers in a credit score. This is because insurance companies have found the credit profile of a person or business to be a better predictor of risk than most any other single key indicator. According to a 2007 FTC study, despite efforts to find other measurements, credit does the best job. The FTC notes it is “predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer.”

While the actual credit-based insurance score is an insurance industry number that’s different from your credit score, it’s based on your credit. You currently don’t have access to see this number or how it is developed. Nor can you usually ask that a policy be written without using the credit-based insurance score. Business insurers don’t even have to tell you that they use your credit in quoting a price.

So, what happens if you have a bad score? Can you still get affordable business insurance?

Exceptions to the Credit-Based Insurance Score?

Many people have not been happy about the connection between credit and business insurance prices. As a result, a few states have made it illegal to use credit as a mandatory factor in setting prices for personal insurance plans. For companies, however, using your past payment history isn’t just legal – it’s often one of the few things they have to go on in determining risk. Insurers often use your track record in paying off business debts as the measuring stick for how well you’ll pay your insurance premiums, as well as your ability to maintain or protect the business property being insured.

How the Credit Connection Can Help You

While it may seem that the credit-based merit system is a bad thing for consumers, the FTC report and insurance industry experts believe that it has its perks. Many drivers, they claim, would pay much higher premiums without the score. The same argument can be made for businesses buying any type of insurance – from the publishing company purchasing errors and omissions coverage to the small liquor store wanting to keep their goods safe from theft. Businesses in high-risk industries may possibly see a break on their pricing if they have an excellent business credit score.

If this is true, then you have another reason to bump up a less-than-stellar score. You already know that it’s a good thing to do for great rates on credit cards and for having access to better loans. Now, you can add buying insurance to that list. Paying less for business protection is something we all want to do. If shining up that score can bring another benefit, that’s certainly not a bad thing.

Steps to Increase Your Credit Score

We’ve determined that the insurance industry’s version of a credit score isn’t exactly the same as the one the credit bureaus give you. They do share similarities, however, and if you can increase your credit score, you will probably see your insurance premiums decrease, as well. How do you do this? Here are the best ways to start:
  1. Get your free personal and business credit scores. You can’t improve what you don’t know.
  2. Work to pay down cards or loan balances that are nearest their limits. Using too much of your available credit lines can drop your score significantly.
  3. Never close a credit account if you don’t have to. Once you pay off a card, keep it open, even if you don’t use it.
  4. Refrain from applying for multiple cards when trying to get insurance. Hard inquiries on your credit score can be harmful. If you don’t need credit now, hold off until you get your insurance policy issued.
  5. Get your free annual credit report. Use the official website to request all three agency reports. See that the information is correct. Take action if you see something that doesn’t look right. (Do this for your business credit, too.)
  6. Consider refinancing large loads of debt. While opening a new line of credit can hurt you in the short run, dropping the rates on expensive cards can help you pay it down faster. Do this if you trust you can avoid running up the balances again.

Credit Is Just One Factor

Finally, don’t discount that the credit score is just one aspect of determining risk for a business. Insurance underwriters are adept at figuring out what will make a customer more prone to file a claim. They can look at all types of data to determine this, from your zip code to your gender to your occupation. It’s best to be honest on your policy application (fraud is a serious offense), and hope that you can decrease some of the other risk factors if your credit is still a work in progress.




This article was written and contributed by Nav - the free, modern way for business owners to manage their business credit and get streamlined access to financing. Nav.com and its mobile app give free access to easy-to-read personal and business credit reports and monitoring all in one spot. It also provides tools to build business credit and a marketplace that matches users to lending options based on their approval odds. This all makes it much easier for business owners to get affordable funding, lower their costs and save time.