Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Jun 14, 2019

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Here's what you need to know...

  • In many states, insurance carriers are allowed to use your credit report to determine how much to charge you when you’re applying for insurance
  • While credit can be used in many states, the company won’t just pull your credit score and use it to underwrite your risk
  • A third-party consumer rating agency like LexisNexis is in charge of reviewing credit information and calculating a credit-based insurance score
  • Insurance scores range between 500 and 997. Higher scores will earn you a better rate than lower scores, and anything over 770 is considered a good score
  • Some of the different factors from your credit report that can affect your insurance scoring include: payment history, outstanding debt, credit history length, pursuit of new credit, and credit mix


Your credit score can affect your ability to secure a house, buy a car, qualify for a professional license, or even land a job. When you have a spotty credit history, it can affect a lot of aspects of your life.

While many people don’t worry about credit affecting auto insurance rates, in many states credit history can be used to rate a policy.

When states use credit to calculate personal quotes, the score that’s used is referred to as an insurance score. An insurance score is very different from a credit score because of what’s used to calculate it. Here’s what you need to know about how insurance scores are calculated and how they are used.

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Do all insurance companies use credit to calculate rates?

Whether or not an insurance company selling auto insurance products can use credit to accept or reject an application is dependent on the regulations in the state. While many state legislatures allow companies to look at credit histories to calculate rates, there are a few states that have prohibited this practice.

If you live in states where credit scoring is prohibited, you don’t have to worry about your credit file affecting your premiums. Some of the states that currently prohibit this practice include: California, Hawaii, Massachusetts, and Maryland.

In all other states, your insurer must notify if adverse action is taken because of your credit because of a federal law — the Fair Credit Reporting Act.

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Why do auto insurance companies use credit to decide how much to charge you?

Many consumers wonder what your credit has to do with how you drive. Since insurance companies use loads of statistics to calculate rates and assess risk, it’s important that companies have access to your records so that they can charge you the appropriate rates.

While you might not agree with the fact, insurance actuaries have found that individuals with low credit scores or a spotty credit file are more likely to file a claim.

Actuaries have proven this trend by conducting studies that show the correlation between credit and the likelihood of filing a claim. You may be an exception to the rule, but insurance underwriting factors consider all segments of the market.

How do insurance companies calculate your insurance score?

If you live in a state where your insurance score is used as an underwriting factor, it’s helpful to know that the carrier doesn’t actually review an applicant’s credit file.

Instead, the company will pay for a report that’s drafted by a third-party consumer credit agency like LexisNexis or FICO.

What type of factors are used when the agency calculates an insurance score?

Not every detail on your credit-based insurance score can be used to calculate your insurance score. Some factors are deemed to be discriminatory in nature. Here’s a breakdown of how much specific factors have an affect on your insurance score:

  • Payment history – 40 percent
  • Outstanding debt – 30 percent
  • Credit history length – 15 percent
  • Pursuit of new credit accounts – 10 percent
  • Credit mix – 5 percent

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What factors can’t affect your insurance score?

If you’re worried about all of your personal information being used, there are limits to how your credit file can be used. Since some factors can be considered discriminatory, they can’t be used. Some of these include:

  • Race, religion, and gender
  • Marital status
  • Income or occupation
  • Interest rate
  • Child support obligations
  • Inquiries

What is the range?

Insurance scores are general between 500 and 997, but some agencies offer larger ranges between 200 and 997. Higher scores will earn you preferred ratings through auto insurance companies.

While you can still find competitive rates with lower scores, anything above 770 is considered good. If you are rebuilding your credit, you may be stuck paying high-risk premiums.

If you’re not happy with the rates that you’re currently paying, it’s time to review your credit score. If there are errors, be sure to contact the agency to have them fixed. Once your file is updated, get quotes for coverage through different companies.

You can use an online rate comparison tool to see which carriers will offer you value rates. After you have done the comparison, you can apply for coverage without any worries.

Start comparison shopping. Enter your zip code into our FREE tool below!

References:

  1. http://www.consumerreports.org/cro/car-insurance/credit-scores-affect-auto-insurance-rates/index.htm
  2. http://www.naic.org/documents/consumer_alert_credit_based_insurance_scores.htm
  3. http://www.iii.org/issue-update/credit-scoring
  4. http://uphelp.org/pubs/credit-scoring-insurance-unfair-practice
  5. https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf
  6. https://www.creditkarma.com/article/insurance_score_impacts_your_car_insurance
  7. http://banking.about.com/od/loans/a/insurancescores_2.htm
  8. http://thismatter.com/money/insurance/insurance-scores.htm
  9. http://www.naic.org/cipr_topics/topic_credit_based_insurance_score.htm
  10. http://www.aiadc.org/File%20Library/Member%20Center/Search%20Content/File%20Upload/Public%20Affairs/2005/July/Credit-Based%20Insurance%20Scores%20Consumer%20Brochure-290558.pdf
  11. http://insurance.illinois.gov/General/how_insurers_use_credit.asp
  12. http://www.investinganswers.com/financial-dictionary/insurance/insurance-score-3278