How Filing an Insurance Claim Can Affect Your Credit Score

Filing an insurance claim might feel like a major financial event that would hit your credit score, but it doesn't directly. Here’s how the fallout from a claim can indirectly impact it.

1. Unpaid Premiums or Deductibles: If you fail to pay your insurance premiums or the deductible on your claim, your insurer could send the debt to a collection agency, which will negatively affect your credit score.

2. Using Credit for Repairs: You might use a credit card to pay for your deductible or for repairs not fully covered by the settlement. This increases your credit utilization ratio, a key factor in credit scoring models.

3. Financing Additional Costs: If the insurance payout is insufficient for major repairs, such as on a home or vehicle, taking out a personal loan to cover the gap will result in a hard inquiry and new debt on your credit report.

4. Medical Bill Collections: For claims involving injuries, any unpaid medical bills that go to collections can be reported to credit bureaus, significantly lowering your score. This is a common consequence of auto or health insurance claims.

How Much Will Filing an Insurance Claim Affect Your Credit Score?

While filing an insurance claim doesn't directly impact your credit score, certain related actions can have indirect consequences. Here are a few key factors to consider:

• Unpaid Premiums or Deductibles: If you can't pay your deductible or fall behind on premium payments, your insurer might send the debt to a collection agency. This collection account can then appear on your credit report, significantly lowering your score.
• Medical Insurance Claims: Unpaid medical bills resulting from a health insurance claim are a common reason for credit damage. If the remaining balance goes to collections, it will negatively affect your credit history and score.

How You Can Avoid Filing an Insurance Claim Affecting Your Credit Score

Pay for Small Repairs Yourself

If the cost of damage is less than or close to your deductible, consider paying for it out-of-pocket. This prevents a claim from being added to your record, which can help keep your insurance premiums from increasing and avoids any potential credit-related scrutiny from insurers.

Increase Your Deductible

Opting for a higher deductible can lower your monthly premiums and discourages filing minor claims. This approach reserves your insurance for major incidents, protecting your claims history and preventing small issues from potentially impacting your insurance score, which can be linked to credit information.

Ways to Improve Your Credit Score

Your credit score plays a crucial role in your financial life, and improving it is always possible. With consistent, positive behavior, you can use proven methods to boost your creditworthiness, often seeing meaningful changes within three to six months.

• Monitor your credit reports regularly. Obtain your free reports from the three major bureaus to identify and dispute inaccuracies, detect potential identity theft, and track your progress.
• Establish automatic bill payments. Your payment history significantly impacts your score, so setting up automatic payments and reminders is key to ensuring you pay on time.
• Reduce your credit utilization ratio. Aim to keep your total balance below 30% of your available credit, as a lower ratio shows lenders you can manage credit responsibly.
• Become an authorized user. You can be added to someone else's credit card account that has a strong payment history and low utilization to potentially improve your own score.
• Diversify your credit mix. Maintaining a healthy variety of credit types, such as installment loans and revolving credit, demonstrates that you can handle different financial responsibilities.
• Limit hard inquiries. Space out your credit applications and use prequalification tools when possible, as too many hard inquiries in a short period can temporarily lower your score.

The Bottom Line

Filing an insurance claim won't directly affect your credit score. However, related actions, like not paying your premiums or deductibles, can lead to collections and negatively impact your credit history.

Frequently Asked Questions

Will shopping for insurance quotes lower my credit score?

No, shopping for insurance quotes results in soft inquiries on your credit report, which do not affect your credit score like hard inquiries do.

Can unpaid insurance premiums affect my credit?

Yes, if you fail to pay your premiums, your insurer could send the debt to a collection agency, which can negatively impact your credit score.

Does the type of insurance claim I file matter for my credit score?

No, the type of claim, whether it's for your home, car, or health, does not directly influence your credit score as claims are not reported.