Some insurers look at credit history when they price auto and homeowners policies. They do not use the same score a lender sees. They use a credit-based insurance score, which starts with credit report data but is built to answer a different question.
What a credit-based insurance score is
A credit-based insurance score, sometimes called an insurance score, is a rating based fully or partly on information in a consumer's credit history. Insurers may use it when evaluating and pricing personal policies, especially auto and homeowners coverage. According to the Insurance Information Institute, the score is confidential and is one part of a broader decision.
What else goes into that decision? Depending on the policy, an insurer may consider a driving record, past claims, a home inspection and other information. FICO says an insurance score is not used by itself to set a price and is not used to deny insurance. The Insurance Information Institute, an industry group, also says insurers may not set rates that unfairly discriminate. That is an industry statement, and this article did not confirm it with a regulator. None of this tells you how much weight a particular insurer gives credit information in a particular quote.
How it differs from a credit score
A conventional credit score estimates the likelihood that someone will repay borrowed money on time. The Consumer Financial Protection Bureau describes it as a prediction based on credit report information. An insurance score instead estimates the risk of a future insurance loss. In insurance modeling, that can mean predicting loss relativity: whether the cost of someone's claims compared with their premiums will be higher or lower than average.
Both kinds of score can start with the same credit file. The models still have different aims. A lender is concerned with repayment. An insurer is estimating claims risk as one pricing factor. A common FICO credit score runs from 300 to 850. Insurance score ranges vary by model and do not sit on that scale, so a number in one system says little about the other. There is also no single insurance score. Several models compete, including ones from FICO, LexisNexis and TransUnion, and the score behind a premium depends on which model the insurer chose.
What goes into the score
Credit scoring models generally consider payment history, unpaid debt, the number and type of accounts, account age, the share of available credit in use, recent applications, and collections, foreclosures or bankruptcies. Insurance models also draw on credit information. The sources used here do not give a universal list of factors or weights for every insurance model. A missed payment may sit in the credit file without affecting every model the same way.
FICO says its insurance scores use only credit-related information and do not use gender, nationality, ethnicity, address or income. That is the model developer's own description. It does not cover everything an insurer may separately consider. Insurers say actuarial studies suggest that how people manage their finances can predict how likely they are to file claims. They also say a common model brings consistency. Both are industry explanations for the practice. Neither lets you work out your own premium from a credit report.
What premium data shows
Credit information does not always push a price up. An Arkansas insurance department report, as summarized by the Insurance Information Institute, covered about 3.4 million personal policies written in 2016. Credit lowered the final premium for nearly 55% of them, raised it for 19.8% and had a neutral effect for 25.7%.
The results differed by coverage. Credit lowered premiums for 56.6% of homeowners policies and 57.4% of auto policies. It raised them for 16.5% of homeowners policies and 23.4% of auto policies. These are policy counts from one state and one year. They are not a forecast for any reader's bill, and they do not show how a given score turns into dollars. Premiums also move for other reasons, such as changes in coverage or claims history.
Questions to ask about your rate
Two questions are a good start. Did you use credit information to set my rate? And which insurance score model did you use? The name and number you know from a loan application may not match the score behind an insurance quote. Asking which factors mattered can make a price easier to understand, even if the insurer does not share the full formula.
The sources used here do not say how to get a copy of an insurance score, how to dispute one, or which states limit credit in insurance pricing. They also do not spell out consumer rights under the federal Fair Credit Reporting Act in this setting. Rules may depend on the state. For a question about a specific policy or a possible error in your credit data, contact the insurer and your state insurance regulator.
Please seek a professional. This article is general information, not financial, tax or insurance advice. Please seek a licensed financial, tax or insurance professional about your own situation.
