Why is insurance tied to credit score?

A credit-based insurance score allows insurers to quote the fairest and most appropriate rate for each customer. Approximately half of our current customers pay a lower premium based on their credit score. A credit-based insurance score doesn't measure your creditworthiness. Instead, measure how risky you are from the perspective of an auto insurance claim, based on of your creditworthiness.

In most states, insurers can use their credit-based insurance score to determine their premiums. Your credit-based insurance score isn't the same as your regular credit score. Because these drivers are likely to use their insurance more, it's more expensive for insurance companies to cover them. In most states, drivers with a good credit history tend to pay much less for car insurance than drivers with poor credit histories. You may want to verify that a credit monitoring service is reliable before entering personal information.

You should receive one of these alerts if the credit score causes a higher premium, a reduction in coverage limits, the cancellation or non-renewal of your policy, or the denial of coverage right from the start. It emphasizes creating informative, engaging, and nuanced content to help readers make personalized insurance decisions. Monitor your credit reports to ensure they are accurate and ask to be re-qualified if you have found errors in your file and corrected them. California, Hawaii, Massachusetts and Michigan don't allow insurance companies to use credit to determine auto insurance rates.

In fact, research by the Consumer Federation of America found a strong correlation between state poverty rates and the percentage of uninsured drivers in a given state, ranging from 4 percent in Massachusetts to 26 percent in Oklahoma. When evaluating your credit history, insurance companies use what's called a credit-based insurance score. Many of them allow consumers to ask their insurance company not to use a credit score against them if they were affected by circumstances beyond their control, such as unemployment, divorce, a serious illness, the death of a spouse or identity theft. However, an insurance credit score, which links customers' premium prices to their creditworthiness, increases the cost of insurance for some low-income drivers and may make it unaffordable for them.

California, Hawaii and Massachusetts are the only states that prohibit insurers from using credit scores to set prices. In those states, insurers base premiums largely on a consumer's driving history, the number of miles traveled per year, and other factors. Mark Friedlander is director of corporate communications at III, a not-for-profit organization that focuses on providing consumers with a better understanding of insurance. If you don't make payments, the insurance company may report this to the credit agencies, which could affect your credit rating.