Most of us are aware that our driving history impacts not only our ability to get auto
insurance but the rates we pay as well. These days there is also another and equally
critical factor insurance companies use, our credit report.
Insurance companies consider your credit report and credit score as a valuable tool to
assess the risk in insuring you. A higher credit score reflects responsibility and
makes it less likely you will make claims against your policy.
A poor credit score may disqualify you from getting insurance with some companies. More
likely it will put you into an upper rate category with higher premiums for the duration
of that policy.
A recent study by the Federal Trade Commission concluded that “Credit based insurance
scores are effective predictors of risk under automobile policies. They are predictive
of the number of claims consumers file and the total cost of those claims. The use of
scores is therefore likely to make the price of insurance better match the risk of loss
posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums
and lower-risk consumers will pay lower premiums.”
According to a recent industry survey over 90% of the top auto insurance companies use
credit data to evaluate new and renewing clients. Almost all insurance applications
now require you give permission to check your credit report. The insurance company
will request a report from one or more of the credit reporting bureaus; Equifax, Experian
The score used is created by a company named Fair Isaac and Company and is referred to
by different names at the different credit bureaus ; InScore at Equifax, the
Experian/Fair Isaac Insurance Score at Experian, and the Fair Isaac Insurance Risk
Score at TransUnion.
Credit scores range from 300 to 850 with the higher score being best. If your score is
below 620 to 650, you may have trouble getting insurance or may have to pay a higher
You can take steps to improve your score;
Payment history: One of the largest factors is your account payment history. Delinquent
payments and collections have a very negative effect on your score. While a steady record
of on-time payments, the longer the better, shows responsibility.
Amounts owed: You will be judged on the number, type and balances of accounts you
already have. Try to keep balances low on credit cards and other revolving type
accounts. Do not close unused credit card accounts and do not open too many new ones.
Length of credit history: Nothing you can do to improve this other than wait, the
longer your credit history, the better.
There are also consumer benefits to insurance scoring;
Lower premiums: A good insurance score can show you are responsible and therefore
qualify you for lower rates.
Get insured faster: Insurance scoring can be obtained almost instantly allowing
policies to be approved quickly. This also helps promote internet access to insurance
for the ultimate in shopping around.
Impartial decision making: Insurance scoring is intended to take gender, race,
nationality, religion and other factors out of the consideration process and focus
on the facts related to your insurance risk.
More insurance products available: Using insurance scoring has allowed more companies
to offer more products to a wider audience. This has lead to more competition which
lowers rates overall and gives greater choices to us all.
The practice of using your credit report and insurance scoring looks like it is here to
stay and will likely be used by all companies in the near future. Some industry studies
even claim that credit based insurance scores are a better predictor of future claims
than driving records.