Your Credit Score Can Effect Your Insurance Premium

There are plenty of reasons why it is important to have a good credit score. One reason that you may not be aware of has to do with insurance. Some insurance companies use a person's credit score to help them determine the amount they will charge for your premium.

The Federal Trade Commission (FTC) https://www.consumer.ftc.gov/articles/0152-credit-scores points out that some insurance companies use credit report information, along with other factors, to help predict how likely it is that you will make an insurance claim. Your credit score is among the factors that influence whether or not they will sell you an insurance policy and how much the premiums will cost.

Insurance companies might use the phrase "insurance scores" or "credit-based insurance scores" when they look at a potential customer's credit score. They are are trying to figure out if a specific customer is likely to pay their premium. Potential customers who have good credit scores show the insurance company that they have a history of reliably paying their debts.

The Equal Credit Opportunity Act https://www.consumer.ftc.gov/articles/0347-your-equal-credit-opportunity-rights (ECOA) requires that a creditor's scoring system (or an insurer's scoring system) can not use certain characteristics - such as race, sex, marital status, national origin, or religion, as factors. If an insurance company denies you, they ECOA requires them to give you notices with the specific reasons your application was rejected. They must give you that information within 60 days.

An acceptable reason for rejection your application for insurance could be: "Your work history is too short." An unacceptable reason would be: "You didn't receive enough points on our credit scoring system."

The FTC says that sometimes a person can be denied insurance, or offered less favorable terms, because of the information in their credit report. In that case, the Fair Credit Reporting Act (FCRA) requires the insurance company to give you a notice that includes the name, address, and phone number of the credit reporting company that supplied the information. If you receive this kind of notice, you are entitled to a free copy of your credit report.

It would be a good idea to check your credit score before you apply for insurance. The FTC says that you can order your free annual credit report from one or all of the national credit reporting companies by visiting www.annualcreditreport.com. Find out how good, or bad, your credit score is. If it isn't very good, you might be able to do some things to improve it.