Anyone who is a member of modern society knows what a credit score is. It’s the number on which our creditworthiness is represented, just as a VIN represents the car it is attached to. The scores are utilized by the companies that lend us money, such as banks, auto-financing companies and credit card issuers.
Others make use of this information, too. If you carry a cellular phone or rent an apartment, duplex or house, it’s highly likely your cellular carrier and landlord checked your credit score as well. And so do many insurance companies, although such use is normally restricted to things like homeowner’s insurance. Auto policies, too. Insurance companies, including those who sell or deal exclusively with auto insurance, employ credit scores as well as part of the data that determines what you’ll pay for your auto insurance policy.
That’s right – your car insurance company very likely used your credit score to quote your premium. Credit scores get wrapped into a larger equation called an insurance score when you get a car insurance policy quote.
You’re probably wondering what your credit score has to do with your driving habits, aren’t you? An insurance score isn’t really about the way you drive. And, despite continual reports that you’ll always be charged higher rates because of a poor credit score, the equation of the insurance score is much more nuanced than just looking at the number of the credit score.
Insurers don’t simply plug in a credit score into the insurance score. That’s because an insurance score isn’t trying to measure your creditworthiness in regards to anything. Rather, it looks to measure how you manage your finances and what sorts of decisions you make in regards to those finances.
Insurance scores are secret, very hush-hush. Every insurer that uses them has their own undisclosed formula of how each part of your credit history can identify underwriting issues that serve as a bright red flag, or place you in the clear.
While the general notion is that lower credit scores will always result in higher pricing in auto policies, this isn’t always the case. Because so many factors are considered in most insurance scores, it is possible that someone with an excellent credit score to be charged more than someone with a lower credit score on an auto policy. Remember, much of the data in the insurance score is related to decisions, thus this example.
Four of our fifty states have thus far effectively banned the use of insurance scores in policy decisions: California, Maryland, Hawaii and Michigan. Michigan’s ban was overturned by the Michigan Supreme Court in a 4-3 split decision in 2010, so insurance scores are being used there now.
Four states also stop insurers from making policy cancellation or non-renewal decisions that use credit-based insurances scores as well. Georgia, Illinois, Utah and Washington are those four states.
And despite the use of insurance scores, the actual method in which an insurer quotes a policy contains much more data than the insurance score. For drivers, they’ll also look at factors such as age, total miles driven each year and their driving and claim histories.
The type of car can have a huge impact on the total cost of your auto policy as well. Some are simply cheaper to insure, while others are more expensive. So the make and model of car you drive, body type, engine size, car age and price are all taken into account by your insurance company. They also consider the likelihood of the car being stolen, repair costs on the model in terms of collisions and of course, the safety record. Your deductible amount has an impact on pricing as well.
Finally, if you’ve had credit struggles and have recently experienced a substantial improvement in your score, you might want to discuss it with your agent. If your auto insurer based your original premiums with credit score as one of the criteria, they likely haven’t checked it again since. And certainly don’t forget to take advantage of our free car insurance quotes.
