What is Credit-Based Insurance Scoring?

What is Credit-Based Insurance Scoring?

The information within your credit report affects you in many ways. It is almost always reviewed by a lender before you can secure a loan. It might be examined by your employer, landlord or utility provider. Virtually all insurance companies use the information within your credit report to assist in the determination of your insurance premium.

Does it seem unusual that insurance companies use information from your credit report to determine your insurance premium? If your answer is yes, the following frequently asked questions may help you understand this issue further:

What is a credit-based insurance score?

A credit-based insurance score, often referred to as an insurance score, is a snapshot of your insurance risk at a particular point in time. Your insurance score is calculated with a complex computer model that analyzes specific details of your credit report. Insurance scoring models have been proven to be statistically predictive of the likelihood you will experience an insurance loss.

How is a credit-based insurance score different from a credit score?

Although credit-based insurance scores and credit scores are both derived from information on your credit report, the two scores are completely different. A credit-based insurance score predicts the likelihood of you filing an insurance claim, while a credit score is used by lenders to predict how likely you are to repay a loan. Since these scores predict completely different types of risk, they do not have any correlation to each other.

What does my past credit management have to do with predicting future insurance losses?

Research has concluded that the responsibility required to properly manage your finances is associated with other types of responsible and prudent behavior, such as the proper maintenance of your home or the safe operation of your automobile. Although irresponsible behavior is often involved in insurance losses, we realize that many insurance losses could not have been prevented and were not the result of irresponsible behavior. There are exceptions to the insurance score correlation to loss just as there are exceptions to any other insurance rating variable correlation to loss. For example, not all teenage drivers will file a claim, but as a group they are much more likely to file a claim. The ultimate goal for an insurance company is to correlate rates for an insurance policy as closely as possible to the actual cost of claims.

How important is my credit-based insurance score in determining my insurance premium?

Credit-based insurance scores are just one of many important rating variables used to determine your insurance premium. A few other examples of important rating variables are:

  • Claims History
  • Driving Record
  • Age, Gender, Marital Status
  • Geographic Location
  • Year, Make, and Model of Vehicle
  • Age and Type of Home

What information in my credit report is used to develop my credit-based insurance score?

Information used to develop your insurance score includes outstanding debt, length of credit history, late payments, new applications for credit, payment patterns, public records and past due amounts. Credit inquiries by insurance companies as well as credit inquiries initiated by someone other than you will not be used as a component of your insurance score calculation. Your income level, race, national origin, religion, gender, age, marital status, and address are not considered in the development of an insurance score.

How can I improve my credit-based insurance score?

Insurance scores are based on your patterns of credit management over time with single incidents generally having very little impact. Insurance scores improve through a pattern of responsible credit use. Credit-related activities within the last 12 months are given the most significance. Specifically, in order to improve your insurance score, pay bills consistently on time, keep balances low on credit cards and other revolving debt, and apply for and open new credit accounts only as needed.

What if the information in my credit report is wrong?

If information on your credit report is incorrect, you should inform the credit bureau of these errors. The credit bureau is required by law to investigate any possible inaccuracies or errors within your report. Once you receive notification that your credit report has been corrected, you may contact your local insurance agent to request an update of your credit-based insurance score. We want you to be aware that some mistakes on your credit report have little to no affect on your insurance score.

If you would like to obtain a free copy of your credit report or learn more about the information contained within your credit report, the following links may be useful for you:


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