The Truth About Insurance Scores
Insurers have long used statistics to determine premiums. That’s how they figured out that drivers under age 25 have more accidents than older drivers. But did you know that your credit history is a statistic that the insurance company is utilizing? Credit based insurance scores are a numerical ranking based in part on a person’s credit history.
Credit has become an important factor in underwriting for home and auto insurance because it helps make assessing risk more accurate and fair.
This Insurance Score is developed from your credit experiences, such as bill-paying history, the number and type of accounts, collection actions, outstanding debt and the age of your accounts.
Using these credit-based insurance scores allows the insurance companies to keep premiums competitive by helping make it possible for consumers who are less likely to incur losses to pay less for their insurance. The use of credit, together with other rating factors such as the number of claims you’ve filed, where you live and drive, what kind of house or car you own and so on, helps insurance companies better determine the appropriate rate to charge. Insurance scores do not include data on race or income and are just one of the many factors in determining insurance rates.
It is important to understand that an insurance score is not the same thing as a credit score used by a lending institution. Both are derived from information in a credit report, however, they predict different things. A credit score predicts how likely you are to repay a loan or other credit obligations. The insurance score measures potential for future loss. At the same time, consumers need to understand that different insurance companies use credit in different ways.
It is up to you to make sure that your credit history is correct. By law you can annually request your credit report for free by visiting www.annualcreditreport.com. While there are some things that are out of your control, you can generally improve your insurance score by paying your bills on time and applying for credit only as needed. Also, if you are using all or nearly all of your available credit, it can be regarded as an unfavorable factor. At your request, the company will recalculate and apply a new score annually.
For more resources on your credit score, insurance score and what you can do to improve it; visit one of these resources:
Equifax - (800) 525-6285
www.equifax.com
Experian - (888) 397-3742
www.experian.com
Trans Union - (800) 680-7289
www.transunion.com
Article from The VML Voice: First Quarter Newsletter