Insurance companies might use credit-based insurance scores to help them make decisions when choosing who to insure and the premiums to charge. They’re different from the credit scores that lenders use, but the same underlying information affects both types of scores.
Insurance companies might use credit-based insurance scores to help them decide if they should offer or renew a policy to someone and how much to charge in premiums. It won't be the only factor that affects your eligibility or rates. And depending on where you live and the insurance company, it might not be a factor at all. But it can still be helpful to understand how your credit history could affect another aspect of your life.
Credit-based insurance scores use your credit history to try to predict whether you will file claims that result in an insurance company losing money. Insurance companies might use these scores when reviewing new insurance applications or renewing customers' policies for auto, home and life insurance.
Insurance companies generally can't deny you insurance based solely on your credit-based insurance score, but your score might be a factor in your ability to get or renew your policy or in the rates you pay.
There are several similarities and differences between credit-based insurance scores and consumer credit scores.
Most states allow insurance companies to consider a credit-based insurance score when determining whether to approve a new policy, renew a policy and how much to charge. However, the score generally can't be the only factor in the decision.
Several states also have stricter limits or forbid companies from using credit-based insurance scores altogether.
| Auto Policies | Homeowners Policies | |
|---|---|---|
| California | Can't affect eligibility or rates | Can't affect eligibility or rates |
| Hawaii | Can't affect eligibility or rates | Allowed |
| Maryland | Might affect rates on new policies | Can't affect eligibility or rates |
| Massachusetts | Can't affect eligibility or rates | Can't affect eligibility or rates |
| Michigan | Might affect installment plan options, but not eligibility or rates | Might affect installment plan options, but not eligibility or rates |
| Nevada | Can't affect eligibility or rates through May 20, 2024 (for events after March 1, 2020) | Can't affect eligibility or rates through May 20, 2024 (for events after March 1, 2020) |
| Oregon | Might affect eligibility and rates on new policies | Might affect eligibility and rates on new policies |
| Utah | Might affect eligibility on new policies and can be used to lower rates | Allowed |
Even when insurance companies can use credit-based insurance scores, they generally have to—and want to—consider other factors when determining your eligibility and premiums. Specifics can depend on the company and the type of insurance, but common factors that affect auto and homeowners insurance rates include:
Insurance companies may consider and weight factors differently, which is one reason that shopping for insurance can sometimes help you find a lower-cost plan.
The underlying information in your credit report can affect your credit-based insurance scores and other types of credit scores. You might be able to improve all these scores if you:
Your history with credit, measured by the ages of your oldest and newest credit accounts, and the average age of all your credit accounts, can also affect your scores. Opening a new account might affect some of these factors immediately. However, paid-off and closed accounts can continue affecting these age-related factors until they fall off your credit reports, seven to ten years later.
Even if you have poor credit, you may be able to lower your insurance rates by focusing on the other factors that can affect your rates:
Although you can't control all the factors that affect your insurance rates, you can use these ideas to try to lower your premiums or save on a new policy.
Checking and monitoring your credit report can help you keep an eye on the underlying information that affects your credit-based insurance scores and credit scores. Even if you live in a state where insurance companies can't consider your credit history, good credit can be important when you want to get a loan or credit card, rent a home or apply for a job.
In addition to giving you access to your free credit report and score, Experian members can use the auto insurance comparison feature to get quotes from multiple insurance companies. This can save you time when shopping around for coverage.
If you’re looking for ways to cut back on monthly costs, it could be a good idea to see if you can save on your auto insurance.
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