{"id":2925,"date":"2021-02-18T10:00:15","date_gmt":"2021-02-18T17:00:15","guid":{"rendered":"http:\/\/2passdd.com\/Arizona-Defensive-Driving-School\/?p=2925"},"modified":"2021-02-18T10:03:27","modified_gmt":"2021-02-18T17:03:27","slug":"insurance-scores-how-your-car-insurance-company-uses-your-credit-information","status":"publish","type":"post","link":"https:\/\/2passdd.com\/Arizona-Defensive-Driving-School\/2021\/02\/18\/insurance-scores-how-your-car-insurance-company-uses-your-credit-information\/","title":{"rendered":"Insurance scores: How your car insurance company uses your credit information"},"content":{"rendered":"\t\t
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Learn how your car insurance company uses your credit report to predict whether you\u2019ll file a claim<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Your credit score could be costing you up to $1,500<\/a> in insurance premiums — but it\u2019s not the credit score you\u2019re used to. Insurance companies aren\u2019t using the score you\u2019ve seen on TransUnion, Equifax or Experian to determine your insurance prices. Rather, they use something called an insurance rating score<\/strong>, or \u201cinsurance score\u201d for short. <\/p>\n

While an insurance score is used to predict whether you\u2019ll be late or delinquent on payments, insurance scores are used to predict whether you\u2019ll file a claim on your auto insurance. More specifically, insurance companies are interested in knowing \u201cwhether the cost of your claims relative to your insurance premium will be higher or lower than average,\u201d according to the credit scoring company FICO<\/a>. <\/p>\n

In practice, there\u2019s only a slight difference between credit scores and insurance scores. Both use information from your credit report, but the categories of information are weighted differently in determining the score. As you can see, insurance scores take weight off of your credit mix<\/a> (the types of credit you have \u2014 mortgages, loans, credit cards, and so on) in order to prioritize your payment history:<\/p>\n

\n\n\n\n\n\n\n\n\n
Category<\/strong><\/td>\nWeight in credit score<\/strong><\/td>\nWeight in insurance score<\/strong><\/td>\n<\/tr>\n
Payment history<\/td>\n35%<\/td>\n40%<\/td>\n<\/tr>\n
Outstanding debt<\/td>\n30%<\/td>\n30%<\/td>\n<\/tr>\n
Credit history length<\/td>\n15%<\/td>\n15%<\/td>\n<\/tr>\n
Pursuit of new credit<\/td>\n10%<\/td>\n10%<\/td>\n<\/tr>\n
Credit mix<\/td>\n10%<\/td>\n5%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n

Studies on the use of credit in insurance pricing have found that there\u2019s a strong correlation between insurance scores and the likelihood of an insurable loss you\u2019ll file a claim for. However, knowing that there\u2019s a strong correlation doesn\u2019t mean insurance experts know exactly why. The Insurance Information Institute<\/a> speculates that it could be because people who manage their finances well<\/a> probably have their cars serviced and repaired before a problem leads to an insurance claim.<\/p>\n

Prior to the 1990s, if an insurance adjuster was pricing an insurance policy and didn\u2019t have adequate credit information about a customer, they could price the policy using their own best judgment. As a result, many customers were put into the wrong risk categories and over- or underpaid for their insurance policies. The industry adopted insurance scores to eliminate personal judgment from insurance prices and apply the same criteria to all customers.<\/p>\n

Insurance scores don\u2019t use any information that isn\u2019t on your credit report, including age, gender, nationality, ethnicity, address, or income. However, depending on your state, your insurance company may separately use some of that information, like age, gender, and ZIP code, to determine your premiums. That\u2019s because, like insurance scores, studies have shown that they\u2019re useful in predicting whether or not you\u2019ll file a claim.<\/p>\n

Whereas the way banks use your credit score is regulated at the federal level, how insurance companies use your insurance score is regulated at the state level. That means that some states restrict the use of insurance scores in policy pricing, some allow broad use, and some ban it entirely. Each state determines what information from your credit report can be used, including:<\/p>\n