Marcus Pickett

Since the beginning of 2010, many Oregon residents have had a new incentive to work on improving their credit scores: saving money on their auto and home insurance.

Once a year, insurance customers may request that their insurer re-rate their policy based on updated credit information. If your score improves, your insurance company must lower your rate. As more residents begin to recover from recent financial hardships and reduce their personal debt, many should be entitled to similar incentives this year. Here's what Oregon residents should know about this law and how they can take advantage of it.

What you need to know about the law

First and foremost, a bad credit score won't raise your premium or get you dropped by your insurance company. In fact, Oregon law states, "After rerating the consumer based upon the request, the insurer may not use credit information from rerating to increase the premium on any personal insurance policy the consumer holds."

In other words, if your credit score improves, you get a lower premium; if it gets worse, your insurance company cannot penalize you. So, if there's any chance your credit score has improved since the policy was first purchased, this re-rating request should be a no-brainer.

It is important to note, however, that the law applies only to existing policies, according to the Oregon Department of Consumer and Business Services. If you want to buy a new policy or switch insurance companies, an insurer can charge you a higher premium -- or deny coverage altogether -- if you have a bad credit score.

Why do insurance companies care about my credit score?

Insurers have been using credit histories for home and auto insurance policies since 1995, according to the Oregon Department of Consumer and Business Services. Insurance companies have demonstrated that your credit score can help predict the likelihood that you'll file a claim. If you're irresponsible with your money, you're more likely, in the eyes of your insurance company, to be irresponsible with your car or property.  

Insurers can't use credit scores to determine premiums without any oversight. Oregon law requires them to document this statistical relationship between credit scores and claims if they wish to use credit history to help price their premiums. Still, some critics claim that insurers use credit ratings as a substitute for identifying prohibited risk factors, like race. Because minorities, on average, have lower credit scores than the overall population, they are affected the most by higher insurance premiums, according to the Oregon Department of Consumer and Business Services.

How to improve your credit score

There are dozens of ways to improve your credit score, such as:

  • Get up to date on bills and keep it that way.
  • Reduce your total debt load, starting with the largest amount first.
  • Keep establishing credit by maintaining activity in least a few accounts.
  • Don't open several accounts over a short period of time.

The best way to improve a credit score is not the same for everybody. But planning your finances and keeping tabs on your credit report go a long way toward achieving that goal.

Don't be concerned that shopping around and getting several insurance quotes will damage your credit when several companies start checking your score. Oregon law prevents insurance companies from using the number of credit score inquiries as a rating factor, according to the Department of Consumer and Business Services.