July 22, 2020
Credit-BasedÌýInsuranceÌýScoresÌýAren’t theÌýSame as aÌýCreditÌýScore. UnderstandÌýHowÌýCredit andÌýOtherÌýFactorsÌýDetermine Your PremiumsÌý
In most states, insurers can use your credit-based insurance score to determine your premiums. Your credit-based insurance score is not the same as your regular credit score.ÌýÌý
According to FICO, aÌýdata and analytics company that measuresÌýcredit risks, manyÌýinsurersÌýuse credit-based insurance scores in states where it isÌýlegally allowed.ÌýÌý
THINGS YOU NEED TO KNOWÌý
KnowÌýhowÌýan insurance company usesÌýyour credit-based insurance score.ÌýAn insurance company can only use your credit-based insurance score as one factor in its underwriting process. It willÌýbe consideredÌýwith several other factors that vary by insurance type.ÌýÌý
For example, with auto insurance,Ìýother factors couldÌýbe: yourÌýZIPÌýcode; the age of the operators; the make, model and age ofÌýyourÌýcar; and even the miles you drive annually. You can ask your insurance company if a credit-based insurance scoreÌýwas usedÌýto underwrite and rate your policy and which risk category you were placed in after you receive a quote.Ìý
Know what’s in a credit-based insurance score.ÌýThere are several different companies that create credit-based insurance score reports for insurers to use. FICO looks at five general areasÌýthatÌýit believes will best determine how you manage risk. This is the breakdown of what it considers and how much the information generally weighs in figuring your credit-based insurance score:ÌýÌý
PaymentÌýhistory (40%)Ìý— How well you have made payments on your outstanding debt in the past.Ìý
OutstandingÌýdebt (30%) — How much debt you currently have.Ìý
CreditÌýhistoryÌýlength (15%)Ìý— How long you have had a line of credit.ÌýÌý
Pursuit ofÌýnewÌýcredit (10%)Ìý— If you have applied for new lines of credit recently.ÌýÌý
CreditÌýmix (5%)Ìý— The types of credit you have (credit card, mortgage, auto loans, etc.).ÌýÌý
A credit-based insurance score cannotÌýuseÌýany personal information to determine your score.ÌýInformation that is not in your credit reportÌýandÌýcannotÌýbe usedÌýincludesÌýthe following:ÌýÌý
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Race, color, national originÌý
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Marital statusÌý
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Income, occupation or employment historyÌý
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Location of residenceÌý
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Any interest rateÌýbeing chargedÌý
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Child/family support obligations or rental agreementsÌý
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Certain types of inquiries onÌýyour credit report like account review inquiries, employment inquiries, promotional inquiries from credit companies, etc.Ìý
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Whether a consumer is participating in credit counseling of any kindÌý
Know how to check yourÌýcredit report andÌýhow to getÌýinformation about improvingÌýyourÌýcredit-based insurance score.ÌýÌýallows consumers to obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies (,ÌýÌýandÌý). You can go toÌýÌýto check all three reports annually without paying a fee or being asked to buy other products. If you find errors on your credit report, contact the credit reporting company to have them corrected;Ìýerrors could affect your credit-based insurance score.Ìý
Many insurersÌýwillÌýreconsider aÌýchange in premium if a policyholder experienced an extraordinary life circumstance likeÌýa catastrophic event, job loss or serious illness.Ìý
It is also important to understand your state's law on the use of credit.ÌýContact yourÌýstate insurance departmentÌýfor that information and tips for how to control yourÌýauto insurance rates.ÌýÌý
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TOP THREE THINGS TO REMEMBERÌý
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Not all states allow the use of credit-basedÌýinsuranceÌýscores in determining premiums. Some states only allow it asÌýoneÌýfactor for property insurance like auto and homeowners insurance. Other states allow it toÌýbe usedÌýwith any type of insurance. Check with yourÌýstate insurance departmentÌýto find out what the law in your state allows.Ìý
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Generally, five different factorsÌýare usedÌýto determine your credit-based insurance score:ÌýpaymentÌýhistory,ÌýoutstandingÌýdebt,ÌýcreditÌýhistoryÌýlength,Ìýpursuit ofÌýnewÌýcreditÌýand credit mix.ÌýÌý
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You can improve your credit-based insurance score. Make payments on time. Pay bills, taxes and fines/fees as agreed. If you are behind on payments, catch up and stay current. Keep balances on credit cards as low as possible.Ìý
About the National Association of Insurance Commissioners
As part of our state-based system of insurance regulation in the United States, the National Association of Insurance Commissioners (²»Á¼Ñо¿Ëù¹Ù·½) provides expertise, data, and analysis for insurance commissioners to effectively regulate the industry and protect consumers. The U.S. standard-setting organization is governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the ²»Á¼Ñо¿Ëù¹Ù·½, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate regulatory oversight. ²»Á¼Ñо¿Ëù¹Ù·½ staff supports these efforts and represents the collective views of state regulators domestically and internationally.