What is a Credit-Based Insurance Score?
How Does a Regular Credit Score Differ From a Credit-Based Insurance Score?
How is Credit Information Used?
Information That May Be Used For Credit-Based Insurance Scoring
- Bankruptcy, collections, foreclosures, and liens.
- Past payment history.
- Length of credit history.
- Home ownership.
- Inquiries for credit initiated by the individual.
- Open credit lines.
- Type of credit in use.
- Outstanding debt.
Understanding Individual Rights
- Insurers must notify individuals before or when they apply for insurance that their credit history or related information may be obtained and used to determine if the policy will be issued and how it will be rated. Individuals should ask their insurance company if a credit scoring system was used. If it was, establish what factors were used in making the determination and how the application can be improved.
- After an insurer has been notified that an error in the individual's credit report has been corrected, the insurance company must re-rate the policy. Individuals have the right to contest any inaccuracies in their credit report and have the incorrect information removed.
- Insurers are prohibited from considering credit inquiries not initiated by the individual, credit inquiries related to insurance, credit history that is identified as being under investigation as disputed information, and information identified as a medical collection account.
- Occasionally extraordinary life events pose temporary challenges to managing finances. Should these events occur, it is possible that an insurer will overlook this temporary credit impact. Examples may include:
- A catastrophic event, as declared by the federal or state government.
- Death or serious illness or injury to the individual or immediate family members.
- Divorce or involuntary interruption of legally-owed alimony or support payments.
- Identity theft.
- Temporary loss of employment for a period of 3 months or more, if it results from involuntary termination.
- Military deployment overseas.
- Other events as determined by the insurer.
- Insurers must re-check an individual's insurance score annually if requested by the individual. Many insurance companies elect not to raise an individual's premium at renewal despite a negative change in credit history. Some insurers only look at credit information for new business or only re-evaluate the insurance score for renewals every three to five years, absent a request from the individual.
Credit Report Monitoring
A credit report and a credit score are two different things. Credit scores must be purchased from one of the credit bureaus. However, this credit score will not be identical to the insurance score the company has calculated using its insurance score model.
No Credit History
Improving a Credit-Based Insurance Score
- Ways to improve credit-based insurance scores are:
- Pay bills on time each month. • Pay at least minimum balances.
- Contact creditors if payments must be missed.
- Reduce the amount owed, especially on revolving debt like credit cards.
- Limit the number of new credit accounts.
- Discuss individual circumstances with the insurer.