Yes. Credit-based insurance scores allow companies to charge lower premiums to customers who are better risks. For most people, a better insurance score, combined with a good driving record, helps them qualify for a better rate. Back to Top

People ask, "What does paying my bills on time have to do with my ability to maintain my home or drive a car." Well, the answer is that people who manage their money well tend to manage their most important financial asset - their home - just as well. People who handle money responsibly also tend to handle their driving responsibly.

Policyholders with the least favorable insurance scores as a group are 40-50 percent more likely to experiences insurance losses to their cars and homes that are greater in number and severity than those with the most favorable scores. Back to Top

The use of credit information by insurance companies is not the same as by banks. It's easy to understand how credit applies to getting a bank loan, but insurers aren't as interested in credit-worthiness as in stability. The logic is similar, because while it's not a loan, insurance is like a line of credit. Customers pay premiums so that, in the event of a loss, they will have money to repair or replace their homes, cars, etc. All research shows that people who use credit carefully in one form are more likely to do so in another. Back to Top

Insurance scores are based on information like payment history, bankruptcies, collections, outstanding debt, account balances relative to limits and length of credit history. For example, regular on-time credit and house payments affect a score positively, while late payments affect a score negatively. Insurers consider only those items from credit reports that are relevant to insurance loss potential. They do not consider information such as how much money the consumer makes or who they owe because they are not assessing the customers' credit-worthiness.

In rating and underwriting insurance policies, insurers consider from credit reports is assigned a score. These scores are then calculated for an overall total, in which positive factors are allowed to offset negative ones and make the appropriate rating and underwriting determinations. No single negative item will necessarily prevent a customer from receiving the best rates. And many customers, while not qualifying for the very best rate, will still qualify for a rate that is significantly better than average due to the information considered from credit reports. Back to Top

No one is suggesting that maintaining good credit makes you a better driver. One does not cause the other. However, maintaining financial stability does put you in a group of people that experience fewer accidents at home and on the road.

Insurers have used credit information for many years because it makes pricing more accurate. Combined with familiar factors such as years of driving experience, previous accidents, type of car or home, where you live and drive, whether you have an alarm system and the like, insurance scores allow insurers to differentiate between lower and higher insurance risks. Back to Top

When I applied for insurance, I gave the agent my social security number, but I didn't realize the insurance company was going to look at my credit. Is this something new?

While it's not new, the use of credit in insurance underwriting and pricing has grown in importance over the past couple of years. And, to be honest, the insurance industry needs to do a better job of letting people know about credit and how it benefits them.

The link between credit history and loss potential has been studied extensively both inside and outside the insurance industry. There is a strong correlation between financial instability and the probability of a loss involving your car or your home. The relevance of credit information to insurance loss potential is proven by the actual loss experience of insurance companies using it and by independent studies. These same sources also demonstrate that consideration of credit information increases the fairness of insurance underwriting, allow many consumers to pay less for insurance than they otherwise would, and enables insurance companies to offer coverage to more consumers.

The use of credit information is not secret. Every existing and potential policyholder deserves to know how a company uses credit information. If you don't feel your agent or company is telling you what you need to know, shop around for another agent or company that will. Back to Top

Insurance scores" are confidential rankings based on credit history information. This includes whether you've made timely payments, number of open credit card accounts, and whether you've filed for bankruptcy. Your "insurance score" is a measure of how you manage your financial affairs, not a summary of your financial assets. It is not the same as a credit report or a credit score. Specific information contained in your credit report remains private, and insurance scores do not include information about income or race. Back to Top

No. The use of credit information is objective. There is no discrimination in how credit data is collected or used to build an insurance score. Insurance scoring does not take into account anyone's income level or ethnicity. Each company applies its own standards to all its policyholders. In general, the higher your insurance score, the greater likelihood you'll save money. That's equally true for everyone. Back to Top

There are fewer and fewer people in our society who do not have some kind of credit background, less than five percent of the population. However, people without an extensive credit history, so-called "no hits," incur losses at a higher rate than the average driver or homeowner and will tend to pay more than the preferred customer. However, it's important to remember that credit is only one of several factors used to determine insurance coverage and rates. Back to Top

Buying insurance involves protecting your home or your car for the next six months or a year, depending on the length of the policy period. The rate you pay is based on the likelihood that you will experience an insurance loss in the future. The fact is that people who have experienced financial difficulties, as a group, experience more insurance losses, which means they pose a higher risk of filing claims in the future.

The use of credit information makes insurance more fair. People less likely to file a claim in the future pay less. Those more likely to have a loss pay more. The same is true for all rating criteria. The alternative would be to charge everyone the same, which means good drivers would pay for bad ones. Most people would find that unfair.
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Is the use of credit just an excuse for the insurance company to charge more for insurance?

Actually, the opposite is true. The use of credit information benefits most consumers, since most people use credit wisely and have good credit histories. Two out of every three consumers benefit when credit is a factor in insurance underwriting.

The use of credit information promotes competition. Since most insurance companies use credit information in different ways, rates can vary widely, so most consumers have choices. Back to Top

The industry is working with regulators and legislators to ensure that help them better understand how credit benefits the insurance consumer. This is a tool that a lot of people don't yet understand. However, if state regulators or legislators restrict the use of credit information, people who benefited - and that include about two-thirds of consumers -- will pay more for insurance.

Insurers use insurance scoring because there is a correlation between financial management and loss experience. The same is true with a variety of factors. Teenagers pay more for auto insurance, for example, because they are involved in more accidents than adults. Generally, males pay more for auto insurance because they drive more aggressively than females. People who live on the ocean will pay more for homeowners insurance than people who live inland because they are more vulnerable to storms. Without these kinds of correlations, low-risk policyholders end up subsidizing high-risk policyholders. Now that's unfair. Back to Top

To the extent where it can be identified, credit scoring models exclude medical liens. However, not all events associated with health problems are identified as such on a credit report. When an unanticipated event occurs, such as a medical emergency, work closely with your medical care provider and manage your medical expenses in such a way that it does not adversely affect your credit. Back to Top

Typically, small business owners keep their business and personal accounts separate. Insurers only review a customer's personal credit record. Anything on a separate report related to the business will not be ordered or considered. However, for those small business owners that use a personal account for the business, it's not always possible to distinguish which charges are for business purposes and which are personal. Back to Top

Credit reports are comprehensive, but errors do appear. While an individual error is not likely to have a large impact on an insurance score, your insurance company will reevaluate and recalculate your premium if you find an error, have it corrected by the credit reporting company and advise your insurance company or agent.

The use of credit information is a fact of life today and affects all consumers in many ways, including getting a job, finding a place to live, securing a loan, getting a telephone and buying insurance. Consumers need to learn more about how credit affects them, know what is in their credit report and check it on a regular basis. In some states, that can be done without charge once a year. In other cases, it's available for a small charge. Back to Top

The use of credit varies from state to state. Some states don't have restrictions. Others allow credit to be used with other underwriting factors. Still others allow insurers to use credit information to set the price for insurance, but not to deny coverage.

Insurance companies strictly adhere to the provisions of the Fair Credit Reporting Act. Individuals are always advised if credit information in any way affected rates. If any inaccurate information exists in a credit report, companies will re-compute insurance scores to be certain that every policyholder receives the appropriate insurance rate. Back to Top