Does My Credit Score Affect My Insurance Rates?

You’ve been driving for years. You haven’t had an accident, or a ticket, or even been caught driving drunk. And now, suddenly, your rates go up.

Why? How can they do that?

Great question, but you won’t like the answer. The insurance industry adopted a policy of using insurance scores, which are derived from your credit reports, to determine how likely you are to file a claim. Apparently, a person with a good credit history is less likely to file a claim than is a person with a poor credit history. Insurance companies make their money by collecting your premiums, and never having to pay for anything. If they have to pay you, they make less money, so they look for ways to make sure that they don’t have to pay money out, or at least for ways to offset those payouts.

Because of this, you may be considered a ‘high-risk’ policy holder if your scores go down. You aren’t necessarily high-risk to yourself, or to other people. You are just a risk to the insurance company.

What, then, is the magic formula used to assess your insurability? That is really, really secret. They don’t want you to know what the magic formula is. You see, if you saw the formula, you might actually know their secret, so they aren’t going to tell you. I know, it makes no sense to me either.

You can, however, see your scores. You can get them from True Credit (http://www.truecredit.com/), which is a TransUnion service, from MyFICO.com (http://www.myfico.com/) or at ChoiceTrust (http://www.choicetrust.com/) who is a leader in insurance scoring. These scores aren’t free, as they aren’t regulated in the same way as credit scores, but they are available at a fairly low cost.

How can improve your scores? Well, pay your bills on time, don’t file bankruptcy, and generally follow the Rules Of Great Credit Scores. Remember, though, that other services will have information about you, such as medical services used, accidents you have had, and even your insurers own database. So while the scores you can buy can be used as a guide, remember that your insurance company may also decide to produce their own scores, and while they may rely on those scores, you will never see them.