Weigh benefits of loyalty to insurer against costs

Dollars & Sense

October 26, 2003|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE LOS ANGELES TIMES

I've often heard that it's best to stay with one insurance company so you can build up loyalty and a good record (as in not filing any claims). Is this a myth? Would it be to my benefit to shop around and move occasionally to companies that may seem less expensive?

Loyalty isn't what it used to be. When profits crashed in the last few years, many insurers looked for reasons to drop even longtime customers, particularly those who had filed too many claims or the wrong kind of claims. (Insurers are particularly nervous about mold and water-damage claims, which have exploded in recent years.)

Your claims history is shared with other insurers via the Comprehensive Loss Underwriting Exchange database, or CLUE. So your "good record" will be communicated to other insurers if you choose to switch.

You might get certain perks for longevity, such as a discount on premiums or a dividend (share of the profits) in good years. Some companies even "forgive" an at-fault accident and don't raise rates when you're a long-term customer (typically that means a decade or more). But those benefits, if available from your current insurer, must be weighed against how much you're paying in premiums each year. Insurance rates can vary hugely, so you could save hundreds or even thousands of dollars a year by shopping around.

I recently refinanced my home and learned my credit score, which was 792. Listed as key factors adversely affecting my credit were:

Insufficient length of revolving credit history.

Time since most recent account opening is too short.

Insufficient length of credit history.

Proportion of balance to credit limits is too high.

I have had home mortgages for more than 40 years and credit cards for more than 25 years, and have never been late with a payment. For the last eight years, I have used only one credit card and the total balance is automatically paid every month. (Several months ago, I applied for and received a department store credit card in connection with a sales promotion, and immediately paid the balance for the purchase.) Although my credit limit is $15,000, I have never charged more than $1,200 in any month, and typically charge less than $600 per month. In view of my perfect record of payments over an extended period of time, can you explain why my credit score is not the maximum value of 900?

Well, for starters, the maximum possible FICO credit score isn't 900.

The most commonly used FICO formula starts at 300 and tops out at 850. Only 11 percent of consumers score above 800, according to Craig Watts, spokesman for Fair Isaac Corp., which created the FICO credit score. Far fewer are at the bottom of the range: Only 1 percent have scores below 500.

Any score over 700 is considered good by most lenders, and yours will allow you to get the best terms and rates from lenders.

A few lenders use a newer formula that ranges from 150 to 950, Watts said. The so-called scaling is the same, though, meaning a score in the 700s will still be a good score.

A perfect payment history isn't all you need for a high number, by the way. Other factors include the average age of the credit accounts on your report, the types of credit you regularly use, how much you owe and whether you've taken on new credit.

It's possible, for example, that your older credit accounts no longer show up on your report, making your credit history appear younger than it is. (If you've used only one credit card for the last eight years, any other credit accounts might have been closed for inactivity or the creditor could have simply stopped reporting them to the bureaus.)

Opening accounts, as you did, also can put a ding in your credit. When your score is high, however, the damage might not be that great.

You can speculate all day, but it comes down to the same thing: It doesn't really matter all that much. Enjoy your score, and stop worrying about achieving perfection.

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