Everyone has a credit score, whether good or bad. And although we may not like it, the credit score can factor things like mortgage payments, car payments and insurance premiums.

That is why it is important to control your spending habits. Keeping a good credit history can keep you from paying higher interest rates or insurance premiums.

How does your credit score factor into insurance?

Insurance provides use credit scores differently from banks. The bank will determine your risk level depending on your history of paying bills on time and the right amounts. However, with insurance, you pay your premiums in advance of coverage. So why would your credit report be important? To many insurers the information included it in can predict your likelihood of filing a claim. Insurance companies state that information in the credit scores can link with occurrences of policyholders becoming victims of typically covered hazards such as fires, burglaries and more. Due to this information, insurance carriers have been using credit scores as part of their process to predict the risk of policyholders filing claims on their homes and cars since the 1990s.

Three states: California, Hawaii and Massachusetts, have banned the use of credit scores to determine insurance premiums due to its controversial practice.

What is the connection?

Studies have found that policyholders with better credit scores file fewer claims, and vice versa, which is why some insurance providers use the information when they set premiums. Carriers say it offers more accurate and fair pricing. The insurance industry says that the use of credit-based scores actually results in lower premiums for the majority of policyholders. The model, though not meant to target those with lower credit scores, has come under much scrutiny. Many consumer groups disapprove the use of this information because they believe that it unfairly fines people who have run into financial difficulties and/or medical emergencies and that it negatively affects minority and low-income customers.

Credit scores can affect premiums a great deal. One large insurance provider charged policyholders with poor credit 127% more than their best credit score counterparts, according to a study published by the Consumer Federation of America.

What is the connection?

If your credit score has taken a plunge, it likely will be a long road to recovery. Credit scores don’t change overnight and often require months and years of discipline, restraint and ensuring that balances get paid down while avoiding the creation of new debt. But the chance to save on mortgage payments, car and home insurance premiums and other big ticket purchases makes all of your efforts worthwhile.

Be sure to regularly check your credit reports. If an error is made and you let it go for months without correcting it, that error could greatly affect your score. Be in the know so you don’t suffer any consequences.

Also, cut back on your charges. If you don’t have the money to purchase an item in full right now, consider making do without it until your credit score is healthier. Regulate your spending habits and see your bills shrink over time. Your future self will thank you for it.