| You hit another car; your auto insurer probably | | | | future loss in auto insurance. The statistical |
| raises your premiums. But you may not know | | | | correlation between good credit and relatively low |
| that your premiums can shoot up much higher if | | | | insurance losses presupposes that the |
| your car insurance company is using a new breed | | | | responsibility required to prudently manage one's |
| of credit score, even if you have a pristine driving | | | | finances is associated with other types of |
| record. | | | | responsible and prudent behaviors, such as proper |
| Known as credit-based insurance scores, these | | | | maintenance of homes and autos, and safe |
| numbers are computed from your bill-paying and | | | | operation of cars. |
| loan data collected by the major credit bureaus. In | | | | Many recent studies confirm the strong |
| recent years, the scores have become as | | | | correlation between credit history and loss in both |
| important in determining your annual premium as | | | | auto and homeowners insurance. Neither insurers |
| your driving record and the neighborhood where | | | | nor the credit-scoring companies that discovered |
| you live. | | | | the relationship know what causes it. It is believed |
| Hundreds of insurers are using models created by | | | | that generally people with a pattern of |
| ChoicePoint and Fair Isaac, the Minneapolis | | | | irresponsible financial behavior and poor credit |
| company that invented credit scoring. Others | | | | history have a much greater chance of being in |
| have developed their own systems. The scoring | | | | an accident or filing a claim. But the other studies, |
| models stress bits of credit data that would seem | | | | such as the Monaghan study, which reviewed |
| to have little to do with a driver's tendency to | | | | those long-standing inferences, say that links |
| make claims. There are no standards: Each | | | | between responsible financial management and |
| company uses different models and weighs | | | | future expected losses are "unsupported." |
| different credit-report information. Some big | | | | Either way scoring could cost you hundreds of |
| companies find scoring useful only for new | | | | extra dollars. Even a driver with a fantastic credit |
| customers, not renewals, while others may use it | | | | score, who rates a low-interest mortgage, could |
| for both. | | | | wind up with a less favorable insurance score and |
| Auto insurers use this credit information to | | | | thus a high premium. That's because formulations |
| produce an "insurance score" because they | | | | for insurance scores weigh credit data differently |
| believe it allows them to more accurately assess | | | | from traditional lender scores. |
| and price a risk. In conjunction with other | | | | There is a way to check. Under the Fair Credit |
| information such as years of driving experience, | | | | Reporting Act of 1970, insurers are required to |
| previous accidents, the type of car or home, and | | | | notify consumers if they experience adverse |
| where the driver lives and drives, credit-based | | | | action, such as denial, premium increase or |
| insurance scores allow insurers to differentiate | | | | cancellation of coverage, due to information |
| between lower and higher insurance risks. | | | | contained in their credit report. Consumers also |
| These scores are not a measure of someone's | | | | have the right to have errors in their credit report |
| financial assets, but of how you as an individual | | | | corrected and can request that the insurance |
| manage your financial affairs. Insurance scores are | | | | company recalculate their insurance score and |
| supposed to be highly accurate predictors of | | | | reevaluate their insurance coverage and premium. |