Published September 11, 2013
Dear Dr. Don,
In a few months, I will pay off my house and will be debt-free. After that, I'll have only a few credit cards with credit limits of up to $20,000. I use the cards sparingly and never carry a balance on them. I have always been on time with my loan and credit card payments. Here's my worry: An increasing number of companies, including insurance, apparently consider one's credit rating when setting rates or charges. Because my future credit could be determined using only the history of a few credit cards, would opening a home equity line of credit help boost my credit score? I wouldn't draw from the funds, but would hold the money with the hope of improving my credit score.
Congratulations on paying off your mortgage. While it's true insurance companies can use your credit history and credit score as part of their underwriting process in setting your insurance premiums, I don't think you need to take out a home equity line of credit to boost your credit score.
Accounts with good payment histories potentially remain on your credit report indefinitely. Since you can get one free credit report a year from each of the consumer reporting agencies, I suggest consumers rotate requesting reports among the big three -- Equifax, Experian and TransUnion -- every four months. You'll be able to see your credit report and affirm your payment history.
Like other firms that check your credit report, insurance companies have to tell you when your credit results in an adverse action on your policy. Your agent may not be able to tell you what credit score would trigger a change in your policy premiums. It is worth a call to discuss how your insurance company uses credit in arriving at an "insurance score" underwriting a policy and setting the premiums.
Since you're concerned, it wouldn't be a bad idea to occasionally purchase your credit report. If you see your rating edging lower where you think your insurer would consider raising your rates, you could consider adding an installment loan or a home equity line of credit to the mix. There's no reason to make this an issue anytime soon.
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