Credit Scoring
The following FAQs will help you understand how insurance companies use your credit information and how this business practice affects the cost of your insurance:
1. What is “Credit Scoring”? A credit score is a number insurance companies assign consumers based on their credit history, such as bill paying history, the number and type of accounts they have, late payments, collection actions, outstanding debt and the age of their accounts.
2. Can an insurance company look at my credit information without my permission? Yes. Both the federal and state Fair Credit Reporting Acts (FCRA), say that insurance companies may look at credit information without your permission for underwriting purposes. The federal law can be found at www.ftc.gov.
3. Why do insurance companies use credit information? Some insurance companies have shown that information in a credit report can predict which consumers are likely to file insurance claims. They believe that consumers who are more likely to file claim should pay more for their insurance.
4. How do I know if an insurance company is looking at my credit? Ask your insurance agent or company if they use credit information for underwriting and rating. If credit history is used for underwriting, ask how it affects your eligibility for coverage. If credit history is used for rating, ask how it affects your insurance premium. Finally, you should ask if they will check the credit history of other people insured on your policy, such as family members, and how they will affect your policy.
5. If I don’t have a credit history, will it affect my insurance purchase? Possibly. Effective June 30, 2003, insurers are restricted from increasing your rates if you don’t have a credit history. Those restrictions apply unless the insurer proves an increase is warranted for people of your age and sex, and who live in your general neighborhood. Because of this law, we anticipate that fewer insurers will penalize you because you don’t have a credit history.
There is something you can do. Sometimes an insurer will not be able to find a meaningful credit history for you. If you think you have a credit history but the insurer cannot find it, make sure your agent or insurance company has your correct name, address, social security number and birth date.
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