Your insurance score is similar, but not the same, to what banks assess when you apply for a credit card or loan. Both scores incorporate the same factors, such as payment history and outstanding debt, but they are weighted a little differently. If you have a bad credit rating, your insurance rating is also likely low.
You might think that the way you manage your money has nothing to do with the likelihood of you filing an insurance claim, but studies have shown a correlation: those with lower credit insurance scores are more likely to file claims than those with higher scores. .
The result? In most states, those with poor credit often end up paying significantly more for insurance.
“Insurance companies want to accurately predict the probability of a [claim] so that everyone’s premiums are accurate and fair, ”says Christine Barlow, certified underwriter in property and casualty insurance and editor-in-chief at FC&S Expert Coverage Interpretation. If someone is more likely to file a claim, she said, “logically they should pay more for insurance.”
Are credit-based insurance ratings fair?
Even though your insurance score can accurately predict whether you’ll file a claim, its use as a pricing factor has become increasingly controversial, in part because of the disproportionate effect on low-income and minority populations.