How Your Credit Affects Your Insurance Premiums

Credit plays a significant role when you’re looking for car insurance, renter’s insurance, or homeowner’s insurance. A thin credit file, inaccuracies in your credit reports, or just plain bad credit can hurt your chances for coverage, and insurance will likely cost you a small bundle.

Perhaps you already have blemished credit and think that being charged more for insurance before a fender’s ever dented or a window’s ever broken just adds insult to injury. Well, the Federal Trade Commission (FTC) agreed that this situation might be unfair (or worse, a proxy for discrimination aimed at overcharging policyholders).

So it did some investigating and issued a congressionally mandated report examining credit-based insurance scores. The good news and the bad news is that these scores really do predict claim experience and often result in lower prices for people who are better risks — as in people who are smart about their credit. The FTC also found that credit scores have virtually no discriminatory bias.

But just what is a credit-based insurance score? And how can you get your hands on your score?

Understanding insurance scores

Understanding how your credit history affects your insurance options can be a challenge. When evaluated with other information like your claims history and driving record, your credit-based insurance score (also known simply as an insurance score) helps insurance companies determine whether you qualify for coverage based on their underwriting guidelines and what rate you’ll pay.

Your insurance score is a snapshot of your insurance risk at a particular point in time. It’s a number based on the information in your credit report that shows whether you’re more or less likely to have claims in the near future that result in losses for the insurance company. As with other scores, the higher your insurance score, the better off you are.

Another way to look at this score is to contrast it with your credit score. An insurance score is a credit-based statistical analysis of a consumer’s likelihood of filing an insurance claim within a given period in the future. A credit score, on the other hand, is a credit-based statistical analysis of a consumer’s likelihood of a credit default within a given period in the future.

Note: Neither your insurance score nor your credit score is adversely affected if you contact several insurance companies for quotes.

Get a copy of your insurance score and insurance claim report

Fair Isaac Corporation, the provider of FICO credit scores, and ChoicePoint, owned by LexisNexis, are the most well-known developers of insurance scores. Fair Isaac insurance scores range from 300 to 900, and ChoicePoint scores range from 300 to 997. To find out where you stand, you can ask your insurance company for your number.

You may find when you ask that your insurance company considers this information to be proprietary, but in the land of the free, you can almost always get someone to sell you your score.

For a small fee, you can get a copy of your LexisNexis Attract insurance score. While you’re on the LexisNexis website, you can get a copy of your C.L.U.E. personal property and auto reports at no charge under the annual disclosure rules of the Fair and Accurate Credit Transactions Act (FACT Act or FACTA).

If you don’t have Internet access, you can order your reports by mail at C.L.U.E. Inc. Consumer Disclosure Center, P.O. Box 105295, Atlanta, GA 30348-5295, or by calling toll-free 866-312-8102. LexisNexis also offers what’s known as a full file disclosure that covers your insurance, employment, and tenant histories all in one swoop.

What to do with your newfound knowledge

After you have a copy of your insurance claim report, take the time to check it out. If you believe that any of the information on your report is incorrect or incomplete, you can file a dispute, just like you would with one of the credit-reporting agencies, by following the instructions included with the report. All claims are verified or removed.

You can also include an explanation regarding any information that’s factually correct but may warrant further discussion. Send disputes to LexisNexis Risk Solutions, LLC, P.O. Box 105295, Atlanta, GA 30348; or call 866-820-8976.

A small but bright spot in the insurance underwriting process is that if you don’t get the best rate available because of information contained in your credit report, you must be told about it, and you can get a free copy of the credit report used. Be sure to check the report carefully for errors and outdated information. Dispute mistakes and then ask your insurer for a premium recalculation.

Other factors

Be aware that insurers have no responsibility to take into account catastrophic events that may damage your credit score either directly or indirectly. Consider adding a statement to your credit report and contacting your insurer for a rate review if, for example, you were unable to pay bills on time because

  • You were injured or seriously ill and hospitalized.

  • You live in an area hit by a natural disaster such as a hurricane and were unable to pay your bills on time because of the storm’s effects.

  • Your company closes and you lose your job.

Insurers may use more than your own credit history to adjust your rates or deny you coverage. They may order the reports and/or scores of other people living at the same address, even if those people aren’t listed on the policy.

For example, insurers may consider unnamed persons’ driving records at the same address. If you purchased an item or property with a former spouse and that person defaults or pays late, even if the property and debt responsibilities have been reassigned by court order, your credit history and score may be adversely affected, which in turn may affect the cost of your insurance premiums.

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