When you are an entrepreneur, having a fully effective business insurance policy is an absolute must. This probably isn’t news to you, but here is something that might be. Did you know that the business insurance quotes you receive are directly related to your credit report? For that reason, it is important to learn more about what insurance providers look at in your report and how you can keep your premiums as low as possible.
As a business owner, you already know how important it is that customers pay their invoices in a timely manner. The insurance company representatives who calculate your business’s premiums are equally concerned about these factors. They are very interested in providing services only to people who can be reasonably expected to pay their premiums on time and in full. By looking at your credit report, insurance providers can tell if you have a history of defaulting on bills. They are allowed by federal law to look at certain portions of your credit report in order to ascertain whether you will be a good risk.
In order to calculate this rather nebulous factor, insurance companies view a limited sample of information on your credit report and come up with what is called your insurance credit score. This is often known as a Paydex score and can range anywhere from one to 100. Ideally, your score should be above 75. The data the companies use include your long-term pattern of making monthly payments, the number of outstanding loans you have accumulated, the number of open credit cards that are in your name, and any collection activity that has occurred on your accounts. Although it may seem to be the same thing, your insurance credit score is different from your FICO score, the one that mortgage companies and other financers use to predict your credit worthiness. That being said, the insurance credit score tends to be similar to the FICO number. In other words, if your FICO score is high, it is pretty likely that your insurance credit score will follow the same trend.
You might be wondering why it is so important to have a high insurance credit score. For one thing, it can give you the opportunity to obtain large business loans should you ever need them. A major infusion of cash might one day be exactly what your company needs to take the next step or expand. In addition, a high score can lead to lower business insurance premiums.
This focus on past payment behaviors and history is quite understandable from the point of view of the insurance company. Objectively speaking, no entity wants to do business or ensure someone with a tendency to fail to make credit card payments or default on loans. Worse still, past bankruptcies can definitely be a strike against you and make for a reason for higher premiums. Fortunately, business insurance rates will go down once the bankruptcy has “dropped off” of your report, generally seven years after it was instated. In the event that you have a very limited credit history that does not contain enough information to enable insurers to calculate a business insurance score, it is against the law for companies to raise your premium as a result.
At this point, you are probably very interested in finding out your exact insurance credit score. Just as you can learn your FICA number, you can easily gain access to this specialized information. Simply buy a copy of the report from True Credit, which is a division of Transunion. Their website is www.truecredit.com. As with your FICA report, it is important that you carefully and thoroughly review the entire document, making sure that there are no errors. If there are mistakes, it is in your best interest to correct them with Transunion. This could actually help to lower the premiums you will be expected to pay for business insurance.
As you look at this report, keep in mind the specific areas that insurance companies look at in order to calculate your insurance credit score:
- The number of credit cards your business has.
- Any debt, including outstanding loans, that your company is carrying.
- The timeliness with which your company pays its monthly bills.
- Any collection activity that is being carried out against you.
- The length of your company’s credit history.
To balance the scales, there are several factors that insurance companies cannot look at:
- The amount of your available credit.
- The number of credit inquiries in your company’s file.
- Type of or insufficient credit history that prevents the calculation of a score.
- The types of credit cards you have and their issuers.
There are some steps you can take to slowly increase your insurance credit score. First, pay your bills on time whenever possible or, better yet, before the due date. Second, do your best to keep your revolving debt low. Third, use credit, but use it wisely. Do so by opening credit cards and buying business-related items with them. Don’t buy beyond your means and pay your bills religiously.
Now that we have made the business insurance quotes you receive a bit less mysterious, you can take steps to have some control over the credit score, and thereby the premiums, you will be charged. While you cannot obliterate the facts about payment history or bankruptcy, you can at least take charge of your business’s credit report, checking for costly errors on a regular basis. If you do have a bankruptcy in your past, keep track of when it will no longer be contained in your credit report. That would be an excellent time to apply for new policies. Although you can’t do without business insurance, you certainly can work to make it as comprehensive and affordable as possible by following this advice.