How Your Credit Rating Affects Your Insurance Premium
Most U.S. insurance companies now use many different factors to determine what you should pay for your home or automobile policy (as well as other types of policies). These factors include your age, gender, driving history, your claims history, the type of home or vehicle that you own and are asking to insure, and other factors such as your credit-based insurance score (CBIS).
Regardless of what the popular belief is, a person’s CBIS is not the same as their personal credit score or credit worthiness. Instead, the CBIS number measures the likelihood that a certain person will make or cause an insurance claim. Insurance industry study results indicate that people with higher CBIS have less serious losses, and fewer of them.
Personal credit scores do affect a person’s CBIS, so it is important for you to regularly monitor it for accuracy. The Fair Credit Reporting ACT (FCRA) permits you to order one free report from each of the major credit reporting agencies; one per year. The majority of states have rules in place to regulate how insurance companies can use credit scores. You may contact the Department of Insurance for specifics. You may see a list of Insurance Departments or Commissioners and their contact information and websites using the link below.
It is important that your CBIS is only one of a number of tools that your potential insurer weighs to determine how much they will ask you to pay for a policy. Regardless of which insurance company you are seeking a quote an explanation of your premium from, you should be told exactly what factors were considered in determine how much you are asked to pay. This article is approved for informational purposes and is not intended to take the place of competent local legal counsel.