Credit scoring can affect the auto insurance rate you are offered. More than 50% of your credit score is apportioned to payment history and the amounts owed. The Fair Credit Reporting Act passed in 1970 allows insurance companies in what is called "permissive purpose," to look at credit information without your permission. Fair Isaac (FICO) provides insurance scoring information to insurance companies.
Understanding What Companies Do
Insurance companies use credit information to improve risk selection and believe there is a direct connection between credit scores and insurance claims. Consumers with higher credit scores have fewer and less costly claims. Conversely, consumers with lower credit scores have more claims and they are more costly claims.
Along with underwriting criteria, insurance companies use credit scoring information to determine an appropriate rate level offer. Based on credit score information, insurance companies can deny coverage, cancel or non-renew polices if they offer alternative coverage through another company within their group of companies. However, coverage and terms do not have to be the same as previously offered.
Important Considerations
Insurance companies have different scoring methods. A score that qualifies you for the "best" auto insurance rate with one company may not qualify you with another. Credit scores vary among credit bureaus. The credit bureau your insurance company uses can have an impact on the rate level offered and ultimately the premium you pay.
Federal law allows consumers a free credit score copy if your company has denied you coverage. The three main national bureaus are:
- Equifax: 800-685-1111
- Trans Union: 800-888-4213
- Experian: 800-397-3742
You can get a free copy of your credit history once every 12 months. You can get this information at www.annualcreditreport.com or by calling 877-322-8228
Advantage of Staying with One Insurer
If you have credit problems, stay with your current insurance company. Many insurance companies now use credit score information, along with other specific underwriting information, to evaluate whether to issue you a policy for car insurance.
Where to Get Help
If you are denied car insurance based on a credit score, demand the exact reasons. It is illegal to give inconclusive, vague or indifferent answers to why you were denied insurance. Contact the Federal Trade Commission (FTC) online or by calling 1-877-FTC-HELP (1-800-382-4357). If inaccurate information is contained in your credit score profile, you should challenge that information in writing and follow through until you get a satisfactory answer or the inaccurate information is deleted.
Many states require insurance companies to file their credit scoring model with the state insurance department. States with the strongest regulations are Maryland, New Mexico, Oregon and Washington. Consumers should get a copy of their state regulations to assess their insurance situations if coverage is denied, canceled or non-renewed.
Tips
- Does your company use credit scores to evaluate you as a risk?
- Different companies use various national bureaus. Get your score with each bureau.
- Get a copy of your credit report and check for inaccuracies. Be diligent in getting misinformation corrected. It can save you hundreds of premium dollars each year.
- Keep on top of your score by getting a free copy every 12 months.
- If you are denied insurance without a precise reason, contact the Federal Trade Commission.
- Check with the state insurance commissioner and get a copy of your state regulations.
Getting Budget Car Insurance: Quote Comparison Guide
Getting Auto Insurance with Low or No Down Payment
How to Get an Accurate Car Insurance Estimate
No Credit Check Car Insurance: Getting Insurance With Poor Credit
Get Affordable Car Insurance with No Down Payment