Credit Questions and Answers

1. Do all insurance companies use credit scores?

According to a recent survey by Conning & Co., a Harford, Connecticut based insurance research firm, 92 percent of all insurance companies use credit information when underwriting new policies. It's important to note that a credit score is just one of several underwriting tools an insurance company considers when determining rates; other rating variables considered are driving record, type of vehicle, where you live, your gender, your age, and other factors.

2. Why do insurers use credit scores?

Insurance companies use financial history along with other factors (such as years of driving experience) to properly classify an insured according to his/her potential risk. Numerous studies have shown a very strong correlation between a consumer's financial history and his/her future insurance loss potential. Thus, insurance companies believe the use of credit helps to underwrite an applicant at a cost that most accurately reflects that particular applicant's specific risk.

3. Does the use of credit scores by insurance companies discriminate against some people or groups of people?

No. Because credit scores are based only on objective financial data and are not based on or affected by your race, age, gender, where you live, where you work, what your job is, how much you make, or whether you are disabled, the use of credit scores is not unfairly discriminatory.

4. What information is in a credit report?

Identifying Information - Name, Current and Previous Addresses, Social Security Number, Telephone Number, Date of Birth

Credit History - History of satisfying obligations to retail stores, banks, finance companies and mortgage companies

Public Records - Judgments, Foreclosures, Bankruptcies, Collections, Tax Liens, Garnishments

Inquiries - Identifies credit grantors or other authorized parties that have received a copy of the consumer's credit report, typically during the past 2 years. Also, lists companies who received consumer information for the purpose of offering credit or other promotions.

5. What is a credit score?

A credit score is a summary of credit characteristics taken from the applicant's credit file data resulting in a three digit numeric score. All characteristics come from the trade line, public record and inquiry section of the credit report. The higher credit scores indicate better financial responsibility. The use of credit score minimizes the subjective nature of human interpretation of the lengthy credit report itself.

6. What variables (data elements in a credit report) are used in calculating an insurance score?

Some credit variables that are used include: outstanding debt, length of credit history, late payments, new applications for credit, types of credit used, payment patterns, available credit, public records, and past due amounts. A credit report can contain both positive and negative information. Different scoring models may use different credit variables. All variables in a model are considered together to produce the best prediction.

7. What variables are NOT used in calculating an insurance score?

Race, color, religion, national origin, gender, marital status, sexual orientation, age, address, salary, disability, occupation, title, employer, date employed or employment history are not used for scoring purposes.

8. How does credit based insurance scoring help consumers?

Insurance companies can offer more products to more people. Since credit scores have been used, competition in the auto insurance market has increased significantly, leading to more choices for consumers. Increased competition in the insurance industry also enables financially responsible consumers to be rewarded with the best rates. Without the use of insurance scores, good drivers and responsible homeowners would pay more for insurance, subsidizing those who are more likely to have a loss.

9. How can I correct my credit report information if it's wrong?

Credit reports are generally accurate. However, mistakes can happen. If you discover a mistake in your credit report, all you have to do is contact the reporting agency and have the credit report corrected.

10. Do insurance company employees or independent agents see my credit report?

No. It is used as an underwriting tool which, combined with other information about you, helps us calculate your auto insurance rate.

11. If an insurance company checks my credit while giving me a quote, will that affect my credit rating?

No. Insurance inquiries do not affect the credit scores used by insurance companies, and therefore do not affect one's credit rating.

Credit inquiries are grouped into 2 categories.

Hard inquiry -An inquiry made by a creditor/lender as a result of applying for credit or a loan.

Soft inquiry - All other inquiries which are not related to obtaining credit or a loan such as when a consumer requests a copy of their report.

A consumer is able to see both hard and soft inquiries if they are viewing a copy of their own report. Creditors and lenders can only see hard inquiries on a consumer's credit report. Therefore they are not able to use soft inquiries in making any credit related decision.

All insurance inquiries are considered soft. Thus, creditors/lenders do not have access to insurance inquiries.