subject: Does Your Credit Score Impact Your Auto Insurance Rates? [print this page] Does Your Credit Score Impact Your Auto Insurance Rates?
If you've ever debated whether your credit score impacts your insurance score, you may be surprised to know there is a direct relationship between the two. Back in the 1990s, Fair Isaac performed an experiment with several automobile insurers to see if credit scores would be a reliable indicator of a homeowner's and car insurance claims loss. When they gathered all their data and analyzed it, they discovered some correlations when comparing insurance claims and credit history.
Nobody has figured out exactly what the relationship is or why a person's credit score impacts their claim rate. It is been publicized about how insurance companies will rate a person's risk for a claim by looking at their credit background. Even though this theory seems to make sense, a study done in 2000 suggested the correlation with being responsible with individual finance and long term claim actions to be unsupported. It stated that a lot more research needed to be done before conclusive evidence could be gathered.
To date, there are only 3 states which have prohibited the use of credit scoring for the pricing of insurance premiums. The states are California, Hawaii, and Massachusetts. The state of Maryland has prohibited the use of credit scores for rating homeowner policies.
Today, many insurance companies are working hard to make sure no other states join in the ban. Some insurance corporations have had results in trying to get a law that provides limited protection for customers passed in 22 states. Essentially, this law prevents delinquent medical records from affecting your insurance credit score. However, the remaining info on your credit file can still impact your insurance rates.
If you're in the unfortunate situation of living in a state that won't ban credit scoring for calculating your insurance premiums, you can be sure that your credit background plays a definite element in the calculation of your insurance premiums. Most insurance companies aren't required to reveal your insurance credit score, but many will inform you they do consider your credit background when calculating your premiums.
Insurance corporations will extract your credit history from two main credit reporting companies. These are the Fair Isaac and Choicepoint. Fair Isaac has been in existence the longest, while Choicepoint is a newer business.
Most insurance companies have their own method of analyzing your credit score using their actuarial staffs to sort through the credit info they receive from the credit reporting agencies with their own claims information to calculate your insurance premiums. Insurance regulators are updated with these scoring models. The scoring model retrieves bits of your credit info and uses them in calculating your insurance premium. Elements like your payment background, credit balances, credit limits, how frequently you shop for credit, and the kinds of loans you have all play a main role in figuring out your insurance rates.
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